
Class \\ Gr45 *M 

Book ,H 3 

GspyrightH? 

COPYRIGHT DEPOSIT. 



HOW TO INVEST 
YOUR SAVINGS 



srs 



By 

ISAAC F. MARCOSSON 



Reprinted from the Saturday Evening Post 

Revised and Enlarged 



HENRY A L T E M U S COMPANY 
PHILADELPHIA 



Copyright, 1907, 

by 

Howard E. Altemus 



^ v 



ILiSSSy of CONGRESS 
Two Gooles Received 
OCT 29 **0f 
Copyn&M Entry 

CLASSA 




To 
GEORGE HORACE LORIMER 



CONTENTS. 

Chapter 

I. Saving by System n 

II. The A. B. C. of Investment 17 

III. How to Invest 27 

[V. Different Classes of Bonds 35 

V. Stocks as Investments 45 

Vt. Real Estate Mortgages as Investments 53 

VII. Real Estate as an Investment 59 

VI 1 1. Investments for Women 65 

IX. How Savings Banks Invest Their Funds... 73 

X. Facts Every Investor Ought to Know S3 

X I. Pitfalls for Investors 93 

XII. Wall Street; The Money Market; The 

Bank Statement 99 

XIII. Glossary of Financial Term- 11 1 

XIV. Financial Books of Reference 119 



PREFACE 

This little book is based on the articles which 
appeared in the Saturday Evening Post of Philadel- 
phia, entitled, "Your Savings. " The wide interest 
they aroused among investors and prospective in- 
vestors all over the country, encouraged the author 
to present them in this more permanent form. Their 
sole purpose is to enable the man or woman with 
savings to become acquainted with the facts essential 
to safe and intelligent investment. The book is 
offered as a slight contribution to the growing edu- 
cational literature which has for its largest purpose 
the safeguarding of the people's money and also to 
show how the pitfalls dug by unscrupulous "get- 
rich-quick" promoters may be avoided. 

I. F. M. 



HOW TO INVEST YOUR SAVINGS 



CHAPTER I 

SAVING BY SYSTEM 



Benjamin Franklin once said: "Money makes 
money and the money that money makes, makes 
more money." This is the simple key to all wealth. 
Therefore, to get money and make it increase and 
multiply for you is the almost universal desire. 
Most people do not stop to realize that to make 
money, you must make what money you have work 
for you. The wealth hoarded by a miser is inert 
power. It is like owning a piece of real estate. 
The property will not actually earn anything for the 
owner unless he plants something in it, or builds 
something on it. Then it becomes productive. So 
with money. 

Investment simply means putting money out to 
work so that it will earn more money. Speculation 
is often mistaken for investment. There is a big 
and sometimes costly difference. Speculation is 
buying something, or part of something, in which 

ii 



HOW TO INVEST YOUR SAVINGS 

the element of chance figures. It may be profit- 
able or it may not. Take a share of stock or a city 
lot. If it is bought for speculation the buyer ex- 
pects the principal to increase in value. Investment, 
on the other hand, consists of buying something to 
secure a steady and assured income. It may be a 
bond or it may be a mortgage. 

All investment begins with the savings bank, 
which is the first bulwark of the people's money. 
The first step toward accumulating money is to 
save a little, and the best way to save a little is to 
put a small amount in a savings bank. It is as- 
tonishing to see to what extent a small sum of 
money will grow. The smallest amount is worth 
saving. Do not hesitate to begin with the pennies. 
They do not know how to take care of themselves 
and the dollars do. 

"But how can I save?'' is the question that peo- 
ple who work for small salaries are asking every- 
where. There is a way and it lies through system. 

Simply apply the same intelligent effort to your 
money that you expend on your time, energy, or 
•the material with which you work. Practically 
everybody who works or earns money in some way 
can put aside five cents a day. This seems to be a 
very insignificant sum. It is a single car fare or 
the price of a glass, of soda water. Yet let us see 
what it can do. 

Five cents put aside every day will amount to 

12 



HOW TO INVEST YOUR SAVINGS 

$182.50 in ten years. Placed in a savings bank 
that pays four per cent, interest it will earn $40.06. 
Thus the total sum represented at the end of ten 
years by the simple saving of five cents a day is 
$222.56. 

Take ten cents a day and by the same process 
of saving and. investing, it will amount to $445.56 
in ten years; while twenty-five cents a day will 
become the sum of $1,113.75. If you put a dollar 
in a savings bank even' week for twenty years it 
will mean $1,612 at the end of that time. 

The only way to save successfully is to keep con- 
stantly at it. It is a good thing to remember that 
you can start a savings bank account with one dol- 
lar and that no amount is too small to be deposited. 
It is not a good plan to keep your savings around 
the house. There is always the danger of fire and 
burglars. Besides, if they are kept in a stocking or 
in a tin bank they will not be earning any more 
money for you. 

You can very easily get the saving habit. When 
you get your pay envelope, or your allowance or 
your income, ask yourself the question : "How 7 
much of this can I save?" If you ask it often 
enough you will find that it will become a sort of 
instinct not difficult to heed. Start some little sys- 
tem that is regulated by your business or your 
habits. For example, put aside a quarter every 
time you are late at your work. If you live in 

13 



HOW TO INVEST YOUR SAVINGS 

the country assess yourself fifty cents every time 
you miss your regular train. If you are a man 
who smokes and for economy take to a pipe, save 
the price of the cigars that you would have bought. 
If you smoked three five-cent cigars a day you 
would be saving fifteen cents. This sum, put into 
a savings bank regularly would amount to $668.18 
in ten years. If you smoked three ten-cent cigars, 
and thus saved thirty cents a day you would have 
$1,336.59 to your credit at the end of ten years. 
This is enough to buy a small cottage. 

The results of systematic saving are many and 
far-reaching. The ambitious boy may secure an 
education in this way. Suppose that the boy starts 
to work when he is ten years old, and that he can 
put away forty dollars the first summer, working 
up to October first, when he should put the money 
into a savings bank. Each succeeding year on 
October first he should put away fifty dollars. If 
he started this account on October first of any given 
year, his savings, at four per cent., compound in- 
terest, would represent the sum of $511.53 on 
October first, eight years later, the principal being 
$440 and the interest $71.53. This is enough to pay 
for the first year in one of the average colleges. 
With scholarships and work during vacations, he 
can easily make his way the remaining three years. 

Thrifty parents may, by saving, not only provide 
an education for their children, but start their sons 

14 



HOW TO INVEST YOUR SAVINGS 

in business or equip their daughters when they 
marry. Assuming that they are able to buy a thou- 
sand-dollar bond when the first child is horn, the 
interest on this bond, put regularly into a savings 

bank, will provide a neat stun when the child lie- 
comes of age. 

Take a thousand-dollar bond paying five per cent. 
The interest each year would be fifty dollars. 
Granting- that the interest is payable January and 
July, there could be deposited the sum of twenty- 
five dollars every six months. At four per cent, 
this interest alone would amount to $1,299.47 by 
the time the child, for whom the bond is bought, is 
eighteen years old. In other words, there would 
have been deposited $900 in interest, and the inter- 
est on these various deposits would be $399.47. 
This would more than pay for half of the college 
education, and the principal of the bond (for the 
bond could easily be sold) would pay for the rest. 

If, on the other hand, the parent desires that the 
boy should go into business when he leaves the 
high school, the bond can be sold, and, with the 
interest that has piled up in a savings bank, give 
the young man a start in some commercial enter- 
prise. 

A merchant in a large Southern city hit upon a 
good plan to provide a fund for his children when 
they should reach the age of twenty-one wars. 
When each child was born he deposited a dollar in 

15 



HOW TO INVEST YOUR SAVINGS 

the savings bank in its name. The next year he 
deposited two dollars. He kept this up each year 
for each child, depositing the number of dollars that 
the birthday represented in years. When each child 
became of age there was $306.16 to its credit in 
the savings bank. The putting aside of this money 
was scarcely felt by the parent. It came in s'mall 
amounts and at intervals. It had a good effect on 
the children, especially on the boys, who realized 
that they had a bank account, and it made them 
see the value and importance of saving money. 

Thus, the importance of saving, as the first start 
on the road to fortune, is obvious. It is not what 
you earn, but what you save, that makes you rich. 
If there are no savings banks in the town or com- 
munity in which you live, you can easily arrange to 
do your banking by mail. In New York City, for 
example, the big savings banks receive deposits from 
all over the United States. One of them, the Bowery 
Savings Bank, the largest, has depositors all over the 
world, including many men in the United States 
army and navy. Banking by mail has become a 
fixed part of modern business. 



16 



CHAPTER II 

THE A. B. C. OF INVESTMENT 

The first problem of the average investor is to 
know when to withdraw his money from the sav- 
ings bank and invest it where it will yield a larger, 
and at the same time a safe, return. You can 
begin with Sioo, but it is best to wait until you 
have $500. Then you can look over the investment 
field for a choice of opportunities. 

In the main there are four kinds of conservative 
investments : 

Bonds. 

Certain Stocks. 

Real Estate. 

Real Estate Mortgages. 

Bonds are the corner stone of conservative in- 
vestment. A bond is a receipt for money borrowed 
by a government, state, city or corporation. This 
receipt, which is in the form of a promise to pay, 
is engraved from a steel plate on heavy paper. The 
government, state, city or corporation issuing it pays 
interest on it until it falls due. Then it pays 
the principal or issues a new bond to take the place 
of the old one which has expired. 

2— Savings I J 



HOW TO INVEST YOUR SAVINGS 

There are many kinds of bonds. The principal 
ones which interest the average investor are these : 

Government bonds, which are issued by national 
governments. 

Municipal bonds, which are issued by states, cities, 
villages, counties and school districts. 

Railroad bonds, which are issued by railroads. 

Public service corporation bonds, which are issued 
by corporations that serve cities : as, for example, 
gas or electric light companies or street railways. 

Industrial bonds, which are issued by companies 
engaged in any kind of business. 

These bonds are always issued for a specific pur- 
pose and to do a certain work. In the case of a 
government it may be to build ships or dig a canal ; 
in the case of a state, the funds may be wanted for 
good roads or a new university building; a city or 
village may issue bonds for paving streets or other 
improvements ; a county may desire to build roads 
or erect a new jail or courthouse; railroads are 
continually needing money to improve their road- 
beds, build bridges or extend their systems, and in- 
dustrial companies may want to build new power- 
houses or factories. It will be seen that the bonds 
are issued with the intention of doing something with 
the proceeds thus obtained. 

There is usually but one kind of government 
and state bond, and the security is the good name 
of the government or state issuing it. No one will 

18 



HOW TO INVEST YOUR SAVINGS 

question Uncle Sam, for example, or doubt the in- 
tegrity of the State of Massachusetts. These bonds 
are merely promises to pay. The remaining three 
kinds — railroad, public service corporation and in- 
dustrial bonds — are usually mortgages on some- 
thing, and comprise the different classes which are 
usually so confusing to people who have had noth- 
ing to do with them. They are as follows : 

Since the bond is a. mortgage on property, the 
highest class bond (and consequently the most val- 
uable), is a first mortgage bond. It is just what 
the name says, anjd is a first claim on the property, 
whether it be/a railroad, gas plant, street-car line 
factory. ''If you own one of these bonds and 
the corporation issuing it fails to pay the interest 
after a given period, usually six months, you have 
the right, with the other owners of the same kind 
of bond in this corporation, to take steps looking 
to the protection of your interests. This may re- 
sult in the property being sold at auction and 
your taking your share out of the proceeds. The 
security depends on whether the property is bonded 
for more than it is worth. 

A second mortgage bond gives the owner second 
claim on the property. This kind of bond is, of 
course, not ><> valuable as a first mortgage 

A general mortgage bond is a mortgage on all 
the property of the corporation issuing the bond. 
In the case of a street railway company it would 

19 



HOW TO INVEST YOUR SAVINGS 

cover the cars, tracks, buildings and plant gen- 
erally. With a steam railroad it would be on tracks, 
roundhouses, office buildings and real estate. The 
value of this bond depends on how many first and 
second mortgages were already on the property, 
because these mortgages would have a prior claim 
over the owners of general mortgage bonds. A 
general mortgage bond, however, may also be a first 
mortgage on the property. 

A consolidated mortgage bond is a mortgage on 
a group of properties, as, for example, when the 
gas and electric lighting companies in a city are 
consolidated into one company, or two small rail- 
roads combine and form one system. The consoli- 
dated mortgage, therefore, is an obligation of the 
company thus formed. The first mortgage bonds of 
any of these single companies, issued before they 
were consolidated, have prior claim over the consoli- 
dated mortgage. 

A collateral trust bond is secured by the deposit, 
with some trustee, of stocks and bonds owned by 
the corporation issuing the trust bonds. If it came 
to a point where the collateral trust bondholders 
wanted to get their money back, in the event of 
the corporation's failure to pay interest, they might 
foreclose and sell the stocks and bonds offered as 
security. 

Refunding bonds are issued to take up bonds 
that have run out. It frequently happens that when 

20 



HOW TO LWEST YOUR SAVINGS 

bonds mature the railroad or corporation that issued 
them faces the problem of reborrowing the money, 
unless, as in some cases, the railroad or corpora- 
has been setting aside a fund, which is called 
a sinking fund, to pay off the bonds. Many bonds 
have a clause, called a "sinking fund" clause, which 
compels the corporation to do this. What is gen- 
erally done, however, when bonds come due is to 
issue a refunding bond, which is sold and the pro- 
ceeds used to pay off the old debt, or these new 
bonds are exchanged for the old ones. 

A debenture bond is simply a promise to pay the 
holder a certain sum of money, and, like a govern- 
ment bond, has as security only the good name, or, 
in the case of a corporation, the record and earning 
power, of the borrow :r. This is not so desirable as 
a bond with more concrete security. 

The average bond is for one thousand dollars. 
Some are for five hundred dollars and a few for 
one hundred dollars. Bonds run generally from 
ten to one hundred years. Some are for longer 
periods. The longer a bond runs the more desir- 
able it usually is for the investor who is able and 
willing to keep his money so invested, because it 
keeps on paying interest regularly and the owner 
- not have to bother about a new investment. 

Bonds pay interest ranging from two per cent. 
( the rate now on government bonds) to seven per 
cent. The average now is from four to five per 

21 



HOW TO INVEST YOUR SAVINGS 

cent. This means that a five per cent, one-thou- 
sand-dollar bond pays the owner fifty dollars every 
year, and a six per cent, one-thousand-dollar bond 
pays sixty dollars a year. Interest is usually paid 
twice a year. The amount of interest due at a 
given period is represented by coupons that are at- 
tached to the bond. If the bond runs for fifty 
years there are one hundred coupons. You have 
only to cut these off one by one as they come due 
semi-annually, send or take them to the office of 
the company or its bankers and receive the interest 
in cash. You can even deposit most coupons in 
your own bank as cash ; for the bank, in turn, will 
collect the money. If the bond be registered, no 
coupons are attached, but the corporation which 
issues it mails checks to all of the bondholders, whose 
names it has on its books. Many bonds are 
"gold" bonds, which means that the principal and 
interest are paid in gold. 

The value of a bond depends on four things : 
what security is offered, the rate of interest it 
bears, the length of time it runs, and how easily 
it may be sold if the owner wants to sell on short 
notice. The price is quoted in per cent, of its face 
value (the amount of the bond). If a thousand- 
dollar bond is quoted at ninety-two, it costs nine 
hundred and twenty dollars. This is under par. If, 
on the other hand, it is quoted at one hundred and 
ten, it is above par, "at a premium," as the term goes, 

2Z 



HOW TO INVEST YOUR SAVINGS 

and costs you eleven hundred dollars. These quota- 
tions are fixed by the general value of the bonds and 
the demand for them. The greater the demand, the 
better the price. Many very safe investment bonds 
never appear in newspaper reports of Stock Ex- 
change transactions, for the reason that few mu- 
nicipal bonds, for example, are listed on the ex- 
changes. 

Why pay eleven hundred dollars for a thousand- 
dollar bond? Here is the explanation. If a rail- 
road company issued some bonds twenty years ago 
when its credit was not of the best, it naturally 
had to pay a high interest, say seven per cent., for 
the money it borrowed. If these bonds remained 
outstanding, provided they had not been refunded 
at a lower rate, they would still pay seven per cent. 
This bond, therefore, would be worth more than 
one that paid five per cent. Hence the premium. 
But if this same company had prospered it could 
borrow new money now at a lower rate of interest 
and issue bonds, say, at five per cent., which prob- 
ably would not bring so large a premium, if any. 
For the conservative investor these new bonds at 
five per cent., but running a longer time, would be 
the better investment. Why ? Because when you 
pay a high premium on a bond, this high buying 
price reduces the actual return of interest and 
thereby cuts down the actual return, in the end, 
on the investment. 

23 



HOW TO INVEST YOUR SAVINGS 

It used to be the fashion to buy government 
bonds because the country was less prosperous and 
investment opportunities were not so many as now. 
Of course, few bonds are so secure, but they pay 
only two per cent., and no investor would think of 
buying them when many other safe investments are 
to be had that yield more. Government bonds are 
bought by national banks mainly, which are required 
by law to own them in order to put out currency 
(bills). 

In buying bonds it is necessary for the buyer to 
know, in the case of a street railway company, how 
long it has been doing business, the character and 
record of its officers, what its earnings have been 
both in prosperous years and in lean, what its fran- 
chises are, what the chances for municipal owner- 
ship are, the competition it has, its indebtedness — 
in essence, all the facts about its condition. Par- 
ticularly, he should see to it that the maturity of 
the bond does not extend beyond the life of the 
franchises. So with all others. 

Practically all bonds contain part or all of the 
phraseology of the following, which is a First 
Mortgage Twenty Year Five Per Cent. Gold Bond : 

For value received, the Blank Consolidated Street Rail- 
road Company, a corporation organized and existing under 
the laws of the State of Ohio, and operating street rail- 
roads in the City of Columbus, promises to pay to the 
Central Trust Company of New York, Trustee, or to the 
bearer or registered owner One Thousand dollars in gold 

24 



HOW TO INVEST YOUR SAVINGS 



coin of the United States of America, of the present 
standard, on the first day of July, 1909, and to pay interest 
thereon at the rate of rive per cent, per annum from the 
rirst day of July, 1889. on the first days of January and 
July in each year, on the presentation and surrender of the 
coupon hereto annexed as they severally become due until 
said principal sum shall be paid, both principal and interest 
of this bond being payable at the agency of said railroad 
company in the City of New York. This bond is subject 
to redemption on or after July I. 1894, at no per cent, of 
the par value thereof, with accrued interest out of a sink- 
ing fund of $22,500 a year beginning with that date as pro- 
vided in the mortgage herein described. This bond is one 
of a series of eight hundred bonds of like tenor, date, and 
amount, numbered consecutively from one to eight hundred, 
both inclusive, and amounting, in the aggregate, to Eight 
Hundred Thousand Dollars, which are all equally secured 
by a mortgage of said railroad company in the nature of a 
conveyance in trust, dated July 1, 1889, and duly recorded, 
conveying all the property and franchises of said railroad 
company to said trust company in trust, for the benefit of 
the holders of said bonds, to all the provisions of which 
mortgage this bond is subject. In case of default for six 
months, after due demand, in payment of any interest on 
any of said bonds, the principal of all thereof may be 
declared due as provided in said mortgage. The principal 
of this bond may be registered on the books of the said 
company at its said agency, and registration thereof noted 
hereon, after which no transfer thereof shall be valid ex- 
cept on said books until after registered transfer to bearer, 
when the principal of the bond will again become transfer- 
able by delivery. The coupons annexed to this bond will 
always be transferable by delivery. This bond shall not 
be valid unless authenticated by the certificate of the trustee 
of said mortgage. 



25 



CHAPTER III 

HOW TO INVEST YOUR MONEY 

Formerly the investor sought the investment; 
now the investment seeks the man. To this ex- 
tent has modern investment been organized. It 
has become a science, like farming. 

Xo matter if you live in a small town in Kansas, 
or in a clearing in Oregon, or on a plantation down 
South, you are able to-day to share in the oppor- 
tunity for safe and well organized investment. Just 
as the rural free delivery has brought the daily 
newspaper, with the fresh news of the world and 
its markets, to the very door of the farmer, so has 
organization of modern investment brought its 
advantages to the homes of the people. 

Since Xew York is the financial heart of the 
country it is natural that this work should have 
begun and been developed there. You will find 
"bond and investment" houses, often with branches 
in many of the other large cities, that make a 
business of seeking, developing and selling safe in- 
vestments to people who have small or large 

21 



HOW TO INVEST YOUR SAVINGS 

amounts of money to invest. They are like de- 
partment stores. Instead of carrying household 
goods or clothing, they carry bonds and other se- 
curities. The method by which these bonds are 
secured and sold forms a large part of the ma- 
chinery of investment organization. 

If any kind of firm wants to do business, it 
must first have something to sell. Therefore, if 
the investment houses sell bonds, the first question 
is, how do they get them? Let us take a typical 
case that will illustrate the general method. 

Suppose a street railway company in a large 
Western city wants to borrow five hundred thou- 
sand dollars to improve its system. Under ordi- 
nary circumstances an individual who wants to bor- 
row would give a mortgage on something. There- 
fore, the street railway company does the same 
thing. It issues bonds, which are simply small 
mortgages. But the company does not undertake 
to sell the bonds. It gets in touch with one of 
the large bond and investment houses in the East. 
A street railway company is a public service cor- 
poration, and if it traverses a populous and pros- 
perous community, its bonds are usually very de- 
sirable securities. Hence the bond house is inter- 
ested. 

Now, the bond house with which this street-car 
company gets in touch does what any other care- 
fulj conservative business concern would do. In 

2a 



HOW TO INVEST YOUR SAVINGS 

this particular case it would send /(engineers to test 
the physical condition of the road — that is, find out 
in what shape the tracks, cars, power-houses were. 
But this would be just the beginning. The bond 
house would have its own lawyers investigate the 
titles to the land owned by the company, the right- 
of-way and the franchises, for all of these enter 
largely into the prosperity of the property. Fran- 
chises especially require to be carefully looked after, 
for it is important they should extend beyond the 
life of the bond. In short, every bit of security that 
the company or property has is tested. 

The same line of careful inquiry would be ob- 
served in any other kind of property. If it hap- 
pened to be a coal mine, the bond house would 
-end geologists to make investigation and analyses ; 
if it were an industrial corporation there would be 
a test of the plant and its earning and producing 
capacity; if it were a railroad, experts would be 

fit up and down the line. So, for every exigency 
'the investment house would first make careful, 
exhaustive investigation. 

When it is assured, after its investigation, that 
the property is good and the security ample, the 
house will underwrite, as the term goes, the bond 
issue. This means that it will buy the bonds and 
then undertake to sell them, in turn, to investors 
and other buyers. Sometimes one house "under- 
writes" a whole bond issue ; sometimes several bond 

2Q 



HOW TO INVEST YOUR SAVINGS 

houses form a buying syndicate in which each is a 
participating member. 

Every large investment house has its own method 
of selling, but all have the same object — to reach 
the buyer. In this respect the comparison with the 
ordinary commercial house continues, for nearly all 
the bond houses have salesmen who literally go out 
on the road. They sell wholesale and retail, but 
they deal, to use a commercial phrase, "direct with 
the consumer." They may sell twenty bonds or 
one bond to a customer. They go to banks and 
they go to homes. Thus they bring investment to 
the doors of the people. 

It is very easy to get in touch with the big in- 
vestment houses. Most of them advertise. A single 
inquiry, sent on a postal card, will cause them to 
be interested in your investment. 

No investment is too small to be beneath the 
notice of these houses. A. butcher up New York 
State with five hundred dollars to invest gets the 
same service as a city bank president with one hun- 
dred thousand dollars. If a sick man in Philadel- 
phia with a thousand dollars writes to one of these 
houses that he is seeking investment, a salesman 
will be sent to see him. -Advice is always obtain- 
able. Much investment is now done by mail, i 

The organization of investment has not only 
served to put facilities for investment within easy 
reach of the people, but it is giving them an intel- 

30 



HOW TO INVEST YOUR SAVINGS 

ligent idea of what they are buying" and what their 
income will be. You don't go at it blindly. Some 
of the bond houses are hanks as well, where the 
small investor can deposit his money until he has 
enough for an investment. 

The investor must have confidence in the integ- 
rity of the house with which he does business, for 
this integrity, after all, is the best guarantee of 
the investment. An example of how worthy of this 
trust some of the great houses are was shown not 
long ago in Xew York. 

A house brought out an issue of street railway 
bonds. On account of a strike and temporary 
financial difficulties, the railway company defaulted 
interest — that is, failed to pay interest w T hen it 
came due. The bond house which sold the bonds 
immediately notified every buyer of them that it 
would buy the bonds back at the price paid, or 
exchange them for other bonds. 

Every big investment house issues comprehensive 
booklets and other kinds of literature describing 
the bonds it sells and also explaining the security 
behind them. You can have your name placed on 
their list of people to receive such announcements 
regularly. In this way you can keep in touch with 
the market. 

It is best for the average investor with savings 
to make his first investment in a bond. Many of 
the railroads and corporations issue $500 bonds, 

3i 



HOW TO IN V EST YOUR SAVINGS 

which will pay from four to five per cent, interest. 
The city of New York has ten-dollar bonds, the 
most recent issue paying interest at four and one 
half per cent. 

If you live in a small town and buy a bond or 
some stock from a house located elsewhere it is 
a good plan to have the security sent to the local 
banker. Then he can tell you if it is the bond or 
stock you ordered. j 

Many people with savings have an idea that they 
must wait until they get $500 before they can buy 
a bond. They are mistaken. Along with the or- 
ganization of the modern business of investment 
there has come a plan of selling bonds on what 
might be called the instalment plan. It is just like 
going down to a department store in your town 
and buying a suite of furniture "on time." You 
pay a certain amount down and the rest in instal- 
ments. Meanwhile, you own the furniture. So 
with bonds, but with this exception — the banker 
or investment dealer lends you the money to buy 
the bond — that is, lends you the difference between 
the amount you pay down and the total cost. For 
this money that he lends he charges the current 
rate of interest. All the while, you own the bond 
or bonds and you are entitled to the interest that 
comes due on the security. In most cases this in- 
terest is ample to pay the interest on the money 
you borrow from the investment house. 

32 



HOW TO INVEST YOUR SAVINGS 

The usual method is for the investor to pay 
down from ten to twenty per cent, of the amount 
oi the investment, and the rest in monthly, quarterly 
semi-annual instalments. If, at any time, the 
investor, by the sudden or unexpected acquirement 
of money, desires to pay the entire cost of the se- 
curities, he can do so. On the other hand, if, for 
some reason, he wants to give up the investment 
and close the account, the bond or security can be 
sold at the best market price, and thus the investor 
is fairly sure not to lose by the transaction. 



33 



CHAPTER IV 

DIFFERENT CLASSES OF BONDS 

There are many different classes of bonds, most 
of them belonging - to the various types already de- 
scribed. For example, a railroad bond may be a 
convertible or an equipment bond. Many of these 
bonds have distinct features that commend them to 
tlie average investor seeking stability of investment. 

Among the best of these bonds is the equipment 
bond, which is known by a number of names, such 
as "car trust certificates" and "equipment notes.' 1 
It is issued by a railroad or corporation needing 
equipment. 

This equipment is rolling stock — locomotives and 
freight, coal and passenger cars. The reason why 
this kind of security is called a car trust certificate 
is because the great part of railroad equipment con- 
sists of cars. The bond is usually secured by a 
mortgage on the equipment. Since equipment is 
absolutely necessary to the operation of a railroad, 
the bond takes on a peculiar and distinct value. 
Indeed, the equipment bond has very frequently 

35 



HOW TO INVEST YOUR SAVINGS 

proved to be a security superior to the general first 
mortgage bond, which, by common consent, has 
been ranked among the highest type of railroad 
securities. The equipment bond yields more than 
the first mortgage bond, and, under ordinary market 
conditions, can be bought on a basis to yield five 
per cent. 

There are safeguards about the issuance of equip- 
ment bonds which give them a unique value. The 
usual way of bringing them out is this : 

Let us suppose that a railroad company trav- 
ersing a rich coal region wants to build a thou- 
sand coal cars which would cost $1,078.20 apiece, 
or a total of $1,078,200. Now the railroad, like 
most other corporations, does not have this amount 
of available money on hand. It must therefore 
borrow the money, and the best and easiest way 
to do this is to issue bonds. Bonds for the full 
amount cannot be issued, because the wear and 
tear on the security offered (the equipment) would 
reduce their value during the life of the bonds. 
So the company does what is usually done under 
such circumstances. It pays in cash fifteen per 
cent, of the cost of the cars and lets the bonds 
raise the money for the remainder of the sum re- 
quired. 

Right here comes the safeguard which distin- 
guishes the equipment bond. A trustee, invariably 
a reliable trust company, is named which takes in 

36 



HOW TO INVEST YOUR SAVINGS 

hand the issuing of the bonds. The equipment is 

built and is used by the railroad company. But 
the company executes a deed of trust for it, con- 
veying the equipment in trust to the trustee who 
holds it for the benefit of all concerned — the bond- 
holders. This is why the security is called a car 
trust certificate. The bonds, which bear the name 
of the company, are a mortgage on the equipment. 
The railroad company pays the trustee (for the 
bondholder) the interest and principal of the bonds 
as they become due. It is not until the last bond 
is paid oft" that the trustee transfers the equipment 
to the company for final ownership. Thus, through 
the entire period of the bonds, the trustee stands 
s guardian of the bondholders' interests, with a 
direct claim on the equipment. 

There are many features to commend equipment 
bonds. In the first place, all the equipment re- 
mains pledged as security until the last bond is 
paid off. The advantage of this is obvious. Since 
the number of outstanding bonds becomes smaller 
each year, the security for the constantly dwin- 
dling remainder becomes enhanced. The deprecia- 
tion, or wear and tear, of the equipment must be 
considered too, but this has little or no effect on 
the bond. 

In the second place, the equipment which secures 

b<»nd- is absolutely necessary to the railroad 

for the conduct of its business. No matter what 

37 



HOW TO INVEST YOUR SAVINGS 

evil times may fall on the corporation, or whether 
it goes into bankruptcy or receivership, the equip- 
ment bonds usually retain their value, and their 
obligations are met. In fact, the equipment of a 
railroad bears the same relation to the road that 
the tools of a mechanic bear to the workman. If 
the mechanic is bankrupt the court exempts the 
tools from seizure because they are the means with 
which he must earn his livelihood. So with a rail- 
road. Both Federal and State courts have held 
that when railroads go into bankruptcy the equip- 
ment, provided the mortgage has been properly 
executed and recorded, must be left free to be 
operated by the assignee or receiver for the benefit 
of the creditors. Hence the bonds securing the 
equipment remain good. 

During the time that the bonds are outstanding 
the railroad company is required to keep the equip- 
ment in good condition, have it insured, pay taxes 
and other charges on it, and replace any of it that 
may be destroyed or worn out in the service. 

A convertible bond has a feature that no other 
kind of bond has, and it is this : It can be con- 
verted into the stock of the company issuing it on 
a basis fixed in the bond. This is why it is called 
a convertible bond. 

This feature gives the bond a certain speculative 
quality, because the value of stock is subject to 
quick changes and depends upon the prosperity of 

. 38 



HOW TO INVEST YOUR SAVINGS 

the railroad or corporation issuing' it. Stock is 
merely an interest in the business or corporation, 
while a first mortgage bond is a claim on it. There- 
fore, the convertible feature in the bond will make 
it appeal to business men who are willing to take 
a chance when they convert the security into stock. 
But this fact must also be kept in mind : You are 
not compelled to convert the bond. Thus, no mat- 
ter how much the stock of the corporation or busi- 
ness should depreciate, the bond remains a bond 
with a fixed rate of interest, and as such is a 
good investment as long as the property remains 
intact. 

There are many things to be considered in buy- 
ing a convertible bond. In the first place, the con- 
ditions governing its purchase must be those gov- 
erning any other kind of good bond. There must 
be no question of the stability of the corporation 
railroad issuing it. In meeting this and the 
other requirements of a stable bond the investor 
gets the full advantage of a regular bond invest- 
ment. 

In some instances the holders of convertible bonds 
never exercise their right of conversion into stock, 
because they find it more profitable and safer to keep 
it as a bond. The moment you take stock for your 
convertible bond, it ceases to be a bond. 

When you buy a bond for its convertible feature, 
you should buy one that has the most attractive 

39 



HOW TO INVEST YOUR SAVINGS 

convertible basis — that is, the bond that gives you 
the opportunity to secure the stock of the company 
on the best possible terms, and with a chance to sell 
the stock at a profit if you so desire. 

There is always a provision in a convertible 
bond stating the terms (or basis, as it is techni- 
cally known) on which the stock may be converted. 
There are usually two methods : 

(i) A conversion on the basis of a fixed value 
of the stock. Usually in a high-class bond of a 
standard railroad or corporation the stock is held 
at a premium. This means that you would have to 
pay, for example, one hundred and fifty dollars' 
worth of bond for one hundred dollars' worth of 
stock. 

(2) A conversion that is an exchange of a cer- 
tain number of shares of stock for each bond. The 
higher the type of corporation, the fewer the num- 
ber of shares of stock you get for your bond. 

A municipal bond is a very desirable investment 
for a cautious investor. It has behind it the good 
name and promise of the city, town or community 
that issues it, and when that city, town or com- 
munity has a high reputation and a good credit, 
the bond takes on the same qualities. In addition, 
many legal and constitutional safeguards are thrown 
about municipal bonds. The very fact that many 
of them are legal investments for savings banks in 
New York and Massachusetts, where the savings 

40 



HOW TO INVEST YOUR SAVINGS 

banks laws are the most stringent, is one good 
reason why they should recommend themselves to 
the average investor who wants conservative in- 
vestment. 

Being of the very highest class of bonds, and 
consequently really gilt edge, municipal bonds usu- 
ally sell at a higher premium than do bonds of rail- 
roads and corporations. In buying them the in- 
vestor sacrifices income to stability. 

While industrial bonds are not so widely held 
as railroad bonds, for the reason that much private 
capital has been used in the upbuilding and ex- 
ploiting of industry, the fact remains that they have 
come to be regarded as a standard investment se- 
curity when certain conditions are fulfilled by their 
purchase. 

An industrial bond is issued to secure money 
6 >r the development or purchase of some kind of 
industry. It may be a steel foundry, an ice plant 
or a cotton mill. The method of bringing out such 
a bond does not differ from that employed to 
bring out a railroad bond or a municipal bond. 
What, first of all, distinguishes the industrial bond 
from other kinds of bonds is the security offered. 
In the case of the railroad bond the security might 
be the equipment ; with a municipal bond it would 
be the taxes. The security of an industrial bond 
usually is the plant, the business done and its earn- 
ing capacity. As with all types of bonds, the more 

4i 



HOW TO INVEST YOUR SAVINGS 

sound and more stable the security the more val- 
uable the bond. It may be laid down as a general 
principle that an industrial bond should be rep- 
resented at least by working capital, that is, the 
net current assets of the company should be suffi- 
cient to pay off the bond. 

Summed up, the industrial bond with the best 
appeal for the average investor with savings is 
one issued by a reliable company with a steady busi- 
ness and a product in constant demand, regular 
earnings, and unquestioned organization, which 
has no political entanglements, and which is con- 
ducted by experienced, conservative and honest 
men. 

Closely allied with bonds are short-term notes, 
which sometimes afford an excellent opportunity 
for the investor. The short-term note is a sub- 
stitute for a bond for this reason : at any ordinary 
time, when a railroad or industrial corporation 
needs money for improvements it issues bonds, to 
run from twenty to fifty years, and paying from 
three and a half to five per cent. The proceeds 
are used for the desired work. During 1907 the cor- 
porations faced the same need of money, but the 
problem of raising it was harder because of the 
high money market. To follow the long-estab- 
lished plan of issuing bonds was out of the ques- 
tion, because the price of bonds was so low that 
they could only be brought out at a loss. As an 

42 



HOW TO INVEST YOUR SAVINGS 

emergency measure they issued short-term notes, 
which pay a high rate of interest (the average is 
from five and a half to six and a half per cent.), 
which has caused them to be in demand by reason 
of their high yield. These short-term notes, as 
their name implies, are for much shorter periods 
than bonds. The average note is for three years 
and is the most desirable. Some are for one year 
and others run for five years. They are issued for 
short periods, because the railroads or corporations 
issuing them do not want to pay a high rate of 
interest for the money they borrow any longer than 
necessary, and because these corporations believe 
that by the time the notes mature the bond market 
will be in better condition. 

The short-term note is like a bond in that it is 
a promise on the part of the railroad or corpora- 
tion to pay money (one thousand dollars or five 
thousand dollars, as the denomination may be) 
which has been borrowed for a specific purpose. 
It is different from many bonds in that it is usu- 
ally not a mortgage or a claim on anything, and 
in most cases depends for its value and security 
on the good name and earning power of the rail- 
road or corporation issuing it. Sometimes, how- 
ever, these notes are collateral notes, and, like 
collateral trust bonds, are secured by deposits of 
stocks or bonds. They have coupons attached or 
may be red, like bonds. They are brought 

43 



HOW TO INVEST YOUR SAVINGS 

out just like bonds, too, each issue being taken or 
underwritten by some great New York or Boston 
banking house, and this house is usually the best 
guarantee of the integrity of the investment. 



44 



CHAPTER V 

STOCKS AS INVESTMENTS 

The subject of stocks is one which the average 
investor should approach with great caution for 
the reason that ill-advised dabbling in stocks often 
leads to reckless speculation. 

\\ -hare of stock is an interest in a business de- 
pending for its value on the prosperity of that 
business. It is unlike a bond, for it is not a mort- 
gage on anything. If the business which it rep- 
resents is good, it usually pays a dividend. If the 
business is bad it often happens that no dividend 
is paid. In this respect stock again differs from a 
bond, which under all ordinary circumstances pays 
certain rate of interest regularly. 
Fundamentally, there are but two kinds of stock: 
common and preferred. Common stock may or 
not have a fixed rate of interest. If earnings 
warrant it, a dividend is paid. But no dividend is 
• •n it until the fixed charges (the interest on 
the bonds) and the dividend on the preferred stock, 
paid. It sometimes happens, however, that 

45 



HOW TO INVEST YOUR SAVINGS 

common stock is very valuable, in fact more val- 
uable than any other kind. Standard Oil stock is 
an example of this. The price on it is so high, 
however, as to take it outside the range of the 
average investor, and it pays less than seven per 
cent, at usual market prices. Common stock is 
the stock in which there is the most speculation, 
for it has large possibilities in the matter of price 
and earning power. 

Preferred stock has a fixed rate of interest. It 
may be four, five or six per cent. As between 
common and preferred stock, the latter is the kind 
most available for the average investor. 

Sometimes the preferred stock is "cumulative, " 
which means that if the dividend is not paid one 
year, it accumulates and becomes an additional 
charge, which must be paid out of future earnings 
before anything can be paid on the common stock. 
The preferred stockholder has been called "a pre- 
ferred partner in the business. " 

The usual phraseology of a certificate of common 
stock is this : 



This certifies that is entitled to 

shares of One Hundred Dollars each of the Common 

Capital Stock of the Blank Company, transferable only 
on the books of the company in person or by attorney on 
the surrender of this Certificate. This stock is subject to 
an issue of six per cent, non-cumulative Preferred Stock of 
said company. All dividends paid by said company in any 
year, except said six per cent, upon the Preferred Stock, 

46 



HOW TO INVEST YOUR SAVINGS 

shall be paid on this stock. This certificate is not valid 
unless countersigned and registered by the Registrar of 
'Fran- the Company. 

A certificate of preferred stock usually reads as 
follows : 

This certifies that is entitled to 

: One Hundred Dollars each of the Pre- 
fer- - k of the Blank Company, transferable on the 

f the company in person or by attorney only on the 
surrender of this certificate for cancellation. The holders 
of the Preferred stock are entitled to dividends thereon to the 
tent of five per centum in each year, upon the par of such 
i the net income of the Company for that year 
remaining after payment of its operating expenses and fixed 
charges, including as well taxes, renewals, insurance, and 
repairs. If five per centum is not earned in any year, then 
there shall he divided among the holders of the Preferred 
k whatever net sum, estimated as before, is earned that 
year. After the Common Stock shall have received five 
per centum upon its par in dividends in any year, the Pre- 
ferred Stock shall be entitled to a further preference ot 
two per centum for that year out of the net earnings 
estimated as aforesaid. After both classes shall have re- 
ceived seven per centum dividends in any year, the holders 
I both classes of said stock shall share ratably in any 
further net earnings applicable to any payment of "dividends 
for that year. Xo mortgage, except a mortgage securing 
00.000 at par of Five Per Cent. Bonds, shall ever be 
placed upon the existing railway- of the Company unless a 
majority in interest of the stockholders of the Preferred 
Stock shall first have given their written consent thereto. 

On the back of all kinds of certificates of stock 
a blank to be filled out in transferring it from 
one owner to another. 

47 



HOW TO INVEST YOUR SAVINGS 

There is still another type of stock called guar- 
anteed stock. It may be either common or pre- 
ferred. A guaranteed stock is simply a stock 
whose dividend is guaranteed. This means that 
the owner of the stock is practically certain to get 
the dividends on it. It is often the stock of a 
smaller railroad that is owned, controlled or oper- 
ated by a larger railroad. The larger road guar- 
antees the dividend on the stock. If the smaller 
company, for example, does not earn the estab- 
lished dividend on its stock, the company that 
guarantees it pays it. 

Its value depends largely upon the company 
which guarantees the dividend. Guaranteed stock 
is much sought by very conservative investors. On 
account of its stability, the yield is lower than 
ordinary common or preferred stock. 

There are two ways to buy stock : for invest- 
ment or for speculation. The way to buy for in- 
vestment is to buy it outright. This means that 
you buy the stock just as if it were a suit of 
clothes, a stove or a table. You pay the full market 
price and you actually own it. Then you can put 
it away and the dividends which it pays will provide 
an income for you. 

Buying stock for speculation is to buy with the 
idea that it will increase in value and you can then 
sell it at a profit. Much speculating in stocks is 
"on margin." Buying stock on margin, is what 

48 



HOW TO INVEST YOUR SAVINGS 

causes the loss, the disgrace and the ruin, for this 
is gambling. In buying on margin you are really 
borrowing the price of the stock from your broker, 

and you merely put up sufficient money, which con- 
stitutes the actual margin, to protect him in case the 
;k g( >es down. 

When the stock, in such a case, lias gone down 
so far that all your margin is used up, the broker 
calls for more. If you do not produce it he sells 
your stock, and then you lose all you put up. In 
the bucket shops, which provide facilities for stock 
gambling, the actual securities are seldom if ever 
bought or sold outright. The bucket shop merely 
bets against the customer. 

Here is a concrete case: If you bought a share 
of Xew York Central and put up ten dollars you 
would nominally own that stock. If it went down 
the broker would want more money. If you put 
up this money you would be ''protected" until there 
was a further change in the market. If the stock 
declined again you would be called on for still 
more margin. If you did not furnish this your 
account would be closed and you would be out 
ewry dollar that you had put up. 

The stocks of banks and trust companies form 
a most desirable investment, but on account of the 
high premium the- yield is seldom over four per 
cent. The best way for the average investor to 
benefit by this extremely attractive investment is 

4 — . c ^ .\ c ) 



HOW TO INVEST YOUR SAVINGS 

to be able to subscribe for the stock of a bank 
when it is being organized. Then he can get it at 
par. Perhaps it will not pay dividends for sev- 
eral years, but all the while it is becoming a more 
valuable property, and it is usually merely a question 
of time when it will not only pay dividends but 
command a premium. 

Not all stock buying is speculation. There are 
many high class stocks, particularly those of the 
great and prosperous railway systems which, if 
bought outright, provide a standard investment. 
A good thing to remember in buying stocks for in- 
vestment is this : put them away in a safe place 
and then forget that you own them. One reason 
why so many people lose money on good income- 
producing stocks is that they read the newspapers 
and become alarmed as soon as their stocks go 
down a few points. If you own stocks, you must 
be prepared to see them go up and down, because 
stocks are subject sometimes to violent fluctations in 
price. If it is the right kind of stock you are assured 
of an income from it no matter what happens in the 
market. 

It is simple and easy to buy stocks. Any one 
of the big investment houses in New York will 
make the purchase. Some of them are members 
of the New York Stock Exchange. If you live 
in a city where there is a local stock exchange you 
can buy through one of its members. If you live 

50 



HOW TO INVEST YOUR SAVINGS 

in a small town or an outlying community you 
can have certificates sent to your local banker who, 
being familiar with securities, can tell you if it is 
the stock you have bought. 

The usual commission charged by a broker for 
purchasing stock is one eighth of one per cent, of 
the par value. This means that if you buy five 
shares of stock, par one hundred dollars, the com- 
mission is exactly sixty-two and a half cents. 



Si 



CHAPTER VI 

REAL ESTATE MORTGAGES AS AN INVESTMENT 

When you look at the lists of investments made 

by savings hanks in the states where proper legal 

guards are placed about the investments of such 

institutions, you will usually find that more than 

one half of the people's funds is invested in real 

►estate mortgages. New York State alone permits 

savings hanks to invest sixty-five per cent, of 

their funds in real estate mortgages. If this is 

such an advantageous investment for a savings bank, 

there is no reason why the average investor should 

-hare ,in. its benefits. 

Now what is a mortgage? A mortgage is a 

document that is a claim on land, or on land with 

something built on it, on which the owner has bor- 

d money. Tf the man who does the borrowing 

cannot pay the interest or the amount of the loan 

at the end of a certain time, and the mort^a^e cannot 

die person or persons who loaned the 

y can foreclose and have the property sold so 

53 



HOW TO INVEST YOUR SAVINGS 

that it will realize the amount that has been borrowed 
on it. Sometimes a series of bonds are issued and 
the real estate mortgage given to secure such bonds. 
In some states the mortgage is accompanied by a 
note, which is merely another form of the promise 
to pay. 

When a man executes a simple mortgage, as the 
phrase goes, he pays interest ^onjthe money he bor- 
rows, usually at the rate of five per cent, per an- 
num. It is just as if he were borrowing from a 
bank and paying interest. -- 

The real estate mortgage has figured long and 
prominently in the drama of the people. In books 
and plays, and frequently in real life, it figured as 
the last desperate resort of the land owner who 
needed money. Often the mortgage was executed 
by a hard hearted money lender, who charged 
usurious rates and who delighted in foreclosing on 
the property. But, as with bonds, the real estate 
mortgage as an investment has been definitely 
organized, is on a high, and reputable basis and 
affords an excellent opportunity for the employ- 
ment of savings. 

In every city to-daV you will find a title com- 
pany. This kind of company succeeded, in a meas- 
ure, the individual lawyer who looked up the title 
of property. The title is the real legal claim or 
deed. If the title is good you have a clear owner- 
ship of the property. When a company employed 

54 



HOW TO INVEST YOUR SAVINGS 

a whole staff of lawyers who did nothing else- but 
look up titles and who kept careful records of all 
real estate transactions, it made the matter of look- 
up a title cheaper. 

The next step was to take up the mortgage 
business. In the old way the man who wanted 
execute a mortgage needed two people : the 
lawyer and the lender. The title company com- 
bined these two steps and loaned money on 
pr • 

Having gone into what might be called the mort- 
g ge business, the company had to make its mort- 
g ges earn some money. So a market for mortgages" 
was created by making them a part of the invest- 
ment opportunity. 

The process is simple. The company takes a 
batch of mortgages ancT pools them. Let us say 
there were five mortgages of twenty thousand dol- 
lars each, making one hundred thousand dollars to 
be divided up for the investors and representing 
five pieces of property on which money was bor- 
rowed. The K company issues two hundred certifi- 
cates, each one of five hundred dollars face value ; 

jisters them like bonds and sells them like bonds, 
paying four and a half per cent, a year. Interest 
aid every six months. These certificates usually 
mature in ten years, although they can be re- 
deemed — paid up — in five. Like bonds they may 
be obtained in various denominations from five 

55 



HOW TO INVEST YOUR SAVINGS 

hundred dollars up. Like a first mortgage bond 
each certificate is a part first claim on property 
whose title is guaranteed. These companies guar- 
antee the principal and interest of the certificate, 
too. 

Like municipal bonds of small localities and like 
the simple real estate mortgage, the real estate mort- 
gage bond has a narrow market ; that is, when it 
comes to selling it, one oftentimes has difficulty in 
finding a ready purchaser. For stability in all re- 
spects, however, a properly issued bond of this 
class is a superior security. 

The matter of buying a real estate mortgage for 
investment depends often on the part of the country 
where you live. If you reside in a small place it 
is, perhaps, wise to buy a mortgage on property 
that you can see, or where you happen to know 
the people involved. In this way you can get an 
interest of five per cent, direct, and you do not 
need the big companies. .^ 

A real estate mortgage anywhere should never 
be for more than two thirds the value of the prop- 
erty. If the property, for example, is worth six 
hundred dollars, the mortgage should not be for 
more than four hundred dollars. 

The big title and mortgage companies never lend 
more than sixty per cent, of the value of the prop- 
erty. The law for savings bank investments in 
New York specifies that they cannot lend more 

56 



HOW TO 1WKST YOUR SAVINGS 

than sixty per cent, of the value of improved prop- 
erty — that is, property with something built on it ; 
and not more than forty per cent, on unimproved 
property — that is, just land. 



57 



CHAPTER VII 

REAL ESTATE AS AN INVESTMENT 

Since the earliest time land has been a measure 
of wealth. It has been the ransom of kings, the 
dower of brides, the object of mighty conquest. 
"To own property," as the phrase has long gone, 
has been an almost universal ambition. Yet there 
are few fields in which more money has been lost 
through injudicious placing. ") - 

One reason why real estate has entered so largely 
into the drama of the people is that it has so often 
meant a home that you could call your own. But 
how to choose wisely and buy properly is the 
problem. 

There are two ways of buying real estate, just 
as there are two ways of buying stocks and other 
securities One way is to buy for investment. The 
other way is to buy for speculation. Most indis- 
criminate buying of real estate is speculation pure 
and simple, because then you buy with the express 
hope of having the^property increase in value. This 
is the same purpose that causes men to gamble in 
stocks. 

59 



HOW TO INVEST YOUR SAVINGS 

In the first place, real estate is one of the most 
stable of things. It cannot go into bankruptcy; it 
cannot move away (earthquakes are very infrequent 
in the United States), and it suffers comparatively 
little from mismanagement or the crookedness of 
bad officials. Of course, it is seriously affected by 
the condition of business, and when there is a wide- 
spread business depression, tfirefe is a decline in 
the value of real estate generally. 

I£ real estate is such a stable thing, why should 
it not be a good thing for the average investor with^ 
savings? It is a safe investment, but more precau- 
tions are necessary in buying it than in almost any 
other kind of investment. No matter in what part 
of the United States you live, or what your occupa- 
tion is, it is safe to say that you have, been tempted 
at some time to buy real estate. The opportunity 
in many cases has been hard to resist, too. 

Perhaps in your home town there ha's been what 
is called a "boom," when real estate values sud- 
denly go up and everybody goes real estate mad 
and expects to get rich over night. The~,tpwn, no 
matter what or where it is, is at once destined to be 
"the queen city," and all roads will lead to it. But 
often the boom flattens out and the only crop that 
the land yields is a harvest of taxes and troubles. 
Therefore it is a good thing for the average investor 
to keep away from "booms" and "boom towns." 
The history of many Western states is the story of 

6q 



HOW TO INVEST YOUR SAYINGS 

the spectacular rise, decline and fall of such towns. 
The only people who profited by them were the 
promoters who sold land early in the boom. 

During the past three years, keeping pace with 
the general prosperity, there has been a legitimate 
activity in real estate, and much of it has been 
bought for investment, but more for speculation. 
It has come to be a favorite medium for the so- 
called "big operators" who deal in millions. 

Take the case of a man or woman with saving's 
who wants to buy real estate as an investment, with 
the primary object of using it as a site for a 
home. 

The immediate problem is to get it in that loca- 
tion where it has the best chance of increasing in 
value, for, no matter if you have no idea of selling 
it again, there is a satisfaction in having it become 
more valuable the longer you own it. You neyer 
know when an emergency may call upon you to 
sell it. This matter of appreciation in value should 
be the underlying one in all real estate buying. 

If vqu are living in a small town or a city, it is 
best to buy in what may be called the path of prog- 
Let the property be near the line toward 
which business is moving, for the encroachment of 
some kinds of business increases values, though, 
me kinds of business depreciate values. If 
a brewery or a. stable should be built on a residence 
square, the value of property there would go down. 

61 



HOW TO INVEST YOUR SAVINGS 

Again, a fever epidemic would do much toward 
( sending down values. 

Another thing to be considered in buying real 
estate is the matter of the town's or city's prosperity. 
It is best to buy in a city that is growing in 
pppulation and business. Every thousand people 
added puts dollars to the value of your holdings. 
It is like buying the bonds of a company with a 
steady earning record. Real estate in cities of wan- 
ing population and that suffer from competition with 
neighboring cities declines steadily. -3 

Buying real estate bargains is often a matter of 
opportunity. Sometimes a chance offers because 
of the fact that the owner is forced to sell property 
unexpectedly, and so the price is lower than it 
otherwise would be. 

There are two kinds of property, improved and 
unimproved. 

Improved property is property on which some- 
thing is built. It may be a dwelling, a factory or 
a theatre. Unimproved property, on the other 
hand, is land without anything built on it. I 

Many great fortunes have been started by the 
lucky purchase of improved property. Men and 
women have bought old buildings, made them into 
tenements and got good rents from them. When 
improved property can be bought cheaply the rents 
afford a good income and yield a satisfactory return 
on the money invested. But often it is a risky busi- 

62 



HOW TO INVEST YOUR SAVINGS 

ness that causes you much solicitude. Your house 
is liable to remain empty or the tenant may leave 
without paying the rent. 

How to find the cheap improved property is the 
problem. The real estate agent seldom can tell you. 
If he knows he will probably buy it for himself. 
You must look for yourself. Carpenters, plumbers, 
and contractors who repair houses often encounter 
bargains of this kind. 

Here is a concrete example ol what may be ac- 
complished with a cheap piece/of improved prop- 
erty. A man in Philadelphia bought a house and 
lot for $3,000, paying $1,000 /in cash and giving a 
mortgage on the property /for $2,000. His ex- 
penses for the year were :/ taxes, $37.50; water 
rent. $12.50; repairs, $36; expense of collect- 
ing rent, $18; interest yon mortgage, $100; or 
a total of $204. He received $30 a month rent 
or $360 a year. Deducting the expenses, the net 
return to him was $156, or a yield of fifteen and six 
tenths per cent, on the money invested. The in- 
come, if put into a savings bank, would pay off the 
mortgage in less than thirteen years. This is the 
German plan of acquiring real estate which con- 
simply of never spending the income derived 
from rents. 

A good rule to follow in buying improved prop- 
erty as an investment is this: the property should 
yield one dollar a month rent for every hundred 

63 



HOW TO INVEST YOUR SAVINGS 

dollars invested. This means that if you buy a 
$3,000 house it ought to bring $30 a month rent. 

In real estate, as in all other kinds of investments, 
there are pit-falls. The chief of these is the "sub- 
division" lure, which consists of selling "choice" 
lots on the instalment plan. You are asked to pay 
$10 down and $10 a month. It sometimes takes 
five or six years to pay for a lot. Meanwhile it is 
not earning a cent for you, because, in the great 
majority of cases the land is not improving in value. 
These subdivisions are advertised in spectacular 
fashion with pictures of shaded, well-kept streets, 
and rows of cozy homes. In realty these streets 
exist only in the imaginations of the promoters. 
Unless you want to build a home, the subdivision 
lot is a good thing to avoid as an investment. 



64 



CHAPTER VIII 

INVESTMENTS FOR WOMEN 

In making investments most women are wisely 
unwilling to take the same chances that a man is 
apt to take. Therefore the first quality that an 
investment for a woman should have is absolute 
stability. Her money should be so placed that it is 
not easily affected by market conditions, by crop 
changes, by the dishonesty of individuals, or by 
shifts of political power. Yet it is interesting- to add 
in this connection that the men in the investment 
business will almost unanimously tell you that one 
of the first things which a woman asks, in discussing 
an investment, is: "Will it go up?" meaning, of 
course, that she expects it at once to increase in 
value. 

But the first step is to save. No matter if you 
are clerk, stenographer, secretary, factory girl, or 
other worker with your hands or brain, it is easy 
w a little sum of money every week. The 
extents to which the most insignificant sums grow 
arc sometimes amazing. 



HOW TO INVEST YOUR SAVINGS 

The real beginning, therefore, of any woman's 
investment is in the savings banks. When, how- 
ever, she has, say, $500, it is time for her to look 
around for an investment that is just as safe and 
that will yield her a larger return. She should 
be willing to make a little sacrifice of income to 
secure an investment that is secure. It will save 
her a lot of worry. The investment for a woman 
should be a long time one — that is, an investment 
that does not mature soon, because in that event 
she will have to go over the whole investment per- 
formance again. In view of these important con- 
siderations, it is highly advisable for the woman 
with savings to buy, under ordinary circumstances, 
a bond, which invariably represents the most con- 
servative investment, and usually runs a long 
time. 

In buying bonds the average woman who has no 
banker with whom to consult should follow those 
investments which are legal for savings banks in 
New York and Massachusetts, the two states that 
throw the strongest safeguards about the people's 
savings. These include real estate mortgages, first 
mortgage bonds of railroads, and state and munici- 
pal bonds. The yield from these very high class 
bonds is smaller than the yield from some other 
investments, but that is because they are so safe. 
There is no more desirable bond, for example, for 
a woman than a city of New York four per cent. 

66 



HuW To 1XVKST Vol'k SAVINGS 

bond, which may often be bought for par, perhaps a 
5. The first mortgage bonds of a half dozen 
I railroads which come inside the savings banks' 
• afford excellent investment for women. The 
list might include bonds of the following: Chicago, 
Burlington and Quincy Railroad; Illinois Central; 
Chicago, Milwaukee and St. Paul; Chicago and 
Northwestern; Lake Shore and Michigan South- 
ern ; Pennsylvania, and Xew York Central and 
Hudson River. These bonds are what are called 
"gilt edge" securities. 

A woman, however, is taking but little more 
risk and is getting a larger income when she in- 
3 in a high class industrial bond. These come 
outside the savings bank class, and should only be 
Jit when the woman has the advantage of the 
advice and judgment of a banker or dealer in in- 
:urities in whom she has absolute con- 
f.dence and the reputation of whose house is of 
ery highest. 
The desire to own a piece of property or a small 
ge makes a strong appeal to women who work, 
riallv in the cities where there are many sub- 
land ; but this is speculative unless you 
want it for a home. If you buy a little cottage, 
xample. you must pay taxes, you must keep it 
in repair, and you run the risk of not having a 
■ l for it. Real estate mortgages, on the other 
hand, have no such risk. But it is well to have 

6; 



HOW TO INVEST YOUR SAVINGS 

\he mortgage on property where you can see it, 
and it is wise to insist on its not being mortgaged 
for more than two thirds of its value. 

In this kind of investment, as in any other kind, 
it is advisable for the woman to seek the best ad- 
vice, for a failure to do this has robbed many of 
hard earned savings. With the present organiza- 
tion of investment facilities it is possible to get in 
touch with the most reliable houses, no matter 
where you live, for investments may be made by 
mail, and their stability depends on the integrity 
of the house with which you do business. 

Women are often the easy dupes of "get-rich- 
quick" schemes. A Boston widow who was left 
to support a half dozen children started a lunch 
stand. By frugality she saved $1,000 in five years. 
She wanted to invest it. She had seen lurid ad- 
vertisements of copper stocks that were selling for 
ten dollars a share and that promised to be worth 
$100 a share in a year. Without asking advice she 
bought these shares. They are not worth ten cents 
now, and her savings are wiped out. 

A widow in Pittsburg, on the advice of one of 
her late husband's business friends who was in the 
coal business, made $10,000 by an investment in 
some Pittsburg coal securities. She was able to do 
this because her friend knew all the details of the 
business. Just about this time Amalgamated Cop- 
per stock was going up. She read about it in the 

68 



HOW TO INVEST YOUR SAVINGS 

newspapers. Without asking advice she invested 
O of her money in copper. Then she settled 
down to watch the newspapers. ( )ne day she saw 
that this stock was rapidly going down, as fre- 
quently happens even with good stocks. Each day 
she saw that it went down more. She became 
frantic, and, fearing- that all of her investment 
might be lost, she hurriedly gave orders to sell 
all her copper stock to realize the best possible 
amount of money under the circumstances. What 

- the result? She lost more than half of her 
money, and the next day the stock began to go up 
strong. She simply had plunged into this whole 
business without seeking advice. 

More women have lost their savings through 
getting excited over newspaper reports and by hear- 
say than in almost any other way. 

A woman not long ago went to the office of a 

Xew York investment broker and said she had 

O to invest. She said that she had heard a 

lot about Japanese bonds and would like to invest 

in them if the broker thought they were good. He 

they were an excellent investment, yielding 

almost six per cent. So she invested the $8,600. 

The investment proved highly satisfactory. She 

came in six months later with $5,000, and her 

r invested this for her in high class municipal 

bonds, that were legal savings bank investment. 

F>ut these bonds are not listed in the list of bonds 

69 



HOW TO INVEST YOUR SAVINGS 

quoted on the stock exchange. One day not long 
after this woman came rushing into the broker's 
office, exclaiming: 

"I am ruined !-" 

On being asked the reason she said : 

"I have been watching the papers every day for 
prices on those last bonds and I can't find any. A 
friend of mine told me that if bonds were not men- 
tioned in the newspapers they were no good." 

The broker, whose house was of the highest class, 
promptly assured the lady that he would buy the 
bonds back at the price she paid for them if she 
was not satisfied. But his explanation about the 
listing reassured her. 

Yet it is a woman, Mrs. Hetty Green, who is 
regarded as one of the shrewdest and most suc- 
cessful investors in the United States. She has an 
office with the Chemical National Bank in New 
York. When the salesmen for bond houses come 
to sell her bonds, she can sometimes tell more 
about the investment than they themselves can. If 
it is a railroad bond she knows all about the 
capitalization ; the bonded debt ; its reorganiza- 
tion ; in fact, its whole financial history. For 
years she has made a careful study of the bond 
business. 

If you should ask Mrs. Green the ideal and 
safest investment for women she would very prob- 
ably say : 

70 



HOW TO INVEST YOUR SAVINGS 



"Put your money in the first mortgage bonds of 
first-class railroads and in real estate mortgages." 

Her own strong boxes are filled with this kind 
oi securities. 



71 



CHAPTER IX 

HOW SAVINGS BANKS INVEST THEIR FUNDS 

Since the savings banks of most states are reg- 
ulated by law in the safe investment of their de- 
posits, it is interesting- and helpful to see just what 
kind of investments these banks make. The nearer 
the investor gets to the average savings bank 
standard the greater will be the safety of his money. 

There are two kinds of savings banks: mutual 
and stock savings banks. A mutual savings bank 
is one that is conducted solely for the benefit of the 
depositors. There is no capital stock to be bought 
and sold or to increase or decrease in value. It is 
really a sort of philanthropic trust for the thrifty 
poor. Most of the mutual banks are in Xew Eng- 
land and the Eastern States and comprise the most 
rvative institutions. Hence they are the 
safe 

A st ck savings bank, on the other hand, is like 
any other commercial bank, in that it is conducted 
primarily to make money for the stockholders as 
well as for the depositors. Many of these banks do a 

7.1 



HOW TO INVEST YOUR SAVINGS 

general banking business and thus take risks. They 
are to be found in the Western and Southern States. 

Savings bank laws are not the same for all states. 
Some states have stricter laws than others; some 
have no savings bank laws at all. The states that 
have savings bank laws are: Connecticut, Indiana, 
Iowa, Maine, Massachusetts, Michigan, Minnesota, 
Kentucky, Missouri, Nebraska; New Hampshire, 
New Jersey, New York, Ohio, Pennsylvania, Rhode 
Island, Vermont and Wisconsin. In the other 
states there are either no restrictions upon the de- 
posits of savings banks or such slight limitations 
as to give the depositor practically no protection. 

The most rigid of all state savings bank laws are 
in New York. Their investments afford a safe 
guide for the average investor who wants absolutely 
the highest class of security. Being of such high 
quality they do not yield so much income as some 
other less restricted investments, and for this 
reason the New York banks do not pay so large 
an interest as the banks of other states which have 
a larger field for investment. 

New York savings banks are permitted to invest 
in only three kinds of securities : Government bonds, 
which include the bonds of the United States and 
the bonds of states, cities, towns, villages and school 
districts ; real estate mortgages, and railroad bonds 
of the highest class. 

Having defined these three classes, the law puts 

74 



HOW TO INVEST YOUR SAVINGS 

further safeguards about them. Xo municipal 
bonds (of cities outside New York State) can be 
purchased, for example, except those issued by a 
city having a population of at least forty-five thou- 
sand people, which has been incorporated at least 
twenty-five years, and which is located in a state 
admitted to the Union before 1896. In addition. 
the total bonded debt of these muncipalities must 
not be more than seven per cent, of the entire value 
of the taxable property in the community. The 
cities, too, must be in states that have faithfully 
paid the principal and interest of their bonds since 
1861. 

The law on real estate mortgages is equally strict 
and may be safely followed by the investor any- 
where. It provides that the investment must be in 
mortgage on property located in Xew York State 
and, what is more important, on property which 
has been appraised, or examined as to its true value, 
by a direct representative of the bank. The bank 
cannot lend more than sixty per cent, of the value 
of the property if it is improved — that is, if it has a 
house or something built on it; and not more than 
forty per cent, of the value if it is unimproved — 
that is. if it is just a piece of ground. 

No less sate are the regulations concerning in- > 
itments in railroad bonds. All these bonds 
must be mortgage bonds, which are the highest 
type because they are a direct claim upon the rail- 



HOW TO INVEST YOUR SAVINGS 

road property. They must be in railroads that have 
regularly paid for five years at least four per cent, 
dividend on the capital stock; and whose capital 
stock is at least one third the amount of the entire 
bonded debt of the road. When a railroad meets 
these requirements it means that a certain amount 
of stock has been sold and the proceeds (the money 
derived) expended on the property, thus giving 
some security for the bonds. 

New York savings banks are forbidden to invest 
more than twenty-five per cent, of their assets 
(the deposits) in railroad bonds, and not more than 
ten per cent, of the assets in the bonds of any one 
company. No trustee of a savings bank can share 
in the profits of an investment made by the bank 
with which he is connected, nor is he allowed to 
borrow the bank's money for his personal or busi- 
ness use. Thus the evil which nearly wrecked the 
big life insurance companies in New York cannot 
be repeated in savings banks. 

A still further safeguard refers to loans, a process 
by which many banks often lose money. The New 
York savings banks can only lend money on col- 
lateral (the security put up by the borrower), which 
the bank itself is authorized by the state laws to 
purchase. The borrower, too, must put up ten per 
cent, more than the market value of the collateral. 
If a man, for example, wants to borrow one hun- 
dred thousand dollars from a savings bank, he must 

7 6 



HOW TO INVEST YOUR SAVINGS 

put up one hundred and ten thousand dollars' worth 
of bonds. 

New York savings banks make a point of buying 
registered bonds. This makes them safe from loss 
by robbery, or dishonest employees. Less than a 
year ago the cashier of a savings bank at New 
Britain, Connecticut, got away with more than two 
hundred thousand dollars' worth of bonds. They 
were coupon bonds mainly, and he was able to sell 
them easily and without fear of detection. If they 
had been registered he could not have sold them. 
This cashier had free access to the bonds of the 
bank. In Xew York at least two representatives 
of the bank must be present when bonds are taken 
out of the vaults. Often there are two combina- 
tions to open the vaults and each one is known to 
a different person. 

Practically one half of the funds of Xew York- 
savings banks is invested in real estate mortgages. 
The remainder is in bonds of the Unite! States, 
cities, towns, counties, villages and school districts 
of Xew York and of Xew York State ; in the bonds 
of other states and their larger cities, and in railroad 
mortgage bonds. 

Let us see what these specific bonds are, for they 
comprise about the safest Xew York investment 
the average investor can make. The bonds of the 
following Xew York cities appear most in the re- 
ports rigs bank securities: Xew York, Roch- 

77 



HOW TO INVEST YOUR SAVINGS 

ester, Schenectady, Buffalo, Jamestown, Elmira, 
Syracuse, Yonkers, Binghamton, Troy, Albany. 
The New York county bonds most generally held 
are: New York, Albany, Kings, Queen, Ulster, 
Erie, Westchester, Richmond, Rensselaer, Dutch- 
ess and Oswego; while the New York villages 
represented are: Flushing, Saratoga, Fredonia, 
Nyack, White Plains and Plattsburg. 

The state whose bonds are most represented 
among the savings bank securities is Massachu- 
setts. Other states whose bonds may be found in 
the lists are: Texas, Rhode Island, Indiana, Mary- 
land, Minnesota, South Carolina, North Carolina, 
Tennessee, New Hampshire, Maine, Ohio, North 
Dakota, Wyoming, Pennsylvania, Idaho, Utah, 
Delaware, and also the District of Columbia. 

The list of cities, outside New York State, whose 
bonds are legal for New York savings bank invest- 
ments is: Portland, Maine; Manchester, New 
Hampshire; Boston, Cambridge, Fall River, 
Holyoke, Lowell, Lynn, New Bedford, Somerville, 
Springfield, Worcester, Massachusetts; Providence, 
Rhode Island ; Bridgeport, Hartford, New Haven, 
Waterbury, Connecticut ; Camden, Hoboken, New- 
ark, Trenton, New Jersey ; Allegheny, Erie, Harris- 
burg, Philadelphia, Pittsburg, Reading, Scranton, 
Wilkesbarre, Pennsylvania ; Wilmington, Delaware ; 
Baltimore, Maryland; Cincinnati, Dayton, Colum- 
bus, Ohio; Indianapolis, Indiana; Detroit, Grand 

78 



Ho\V TO INVEST YOUR SAVINGS 

Rapids, Michigan ; Milwaukee, Wisconsin ; Minne- 
apolis, St. Paul, Minnesota ; Des Moines, Iowa ; 
Omaha, Nebraska : San Francisco, Los Angeles, 
( )akland, California ; Louisville, Kentucky : and 
St. Louis and Kansas City, Missouri. 

me of 'the railroad bonds which come within 
the restrictions of the Xew York laws and which are 
to be found most in the savings bank securities are: 
Boston and Maine, first mortgage; Buffalo, Roch- 
ester and Pittsburg, first and consolidated mort- 
gage: Central Railroad of Xew Jersey, general 
mortgage; Chicago and Alton, first mortgage and 
refunding mortgage; Chicago and Northwestern, 
consolidated and first mortgage on main .and all 
branch lines; Chicago, Burlington and Quincy, con- 
solidated and first mortgage on main and branch 
lines: Chicago, Milwaukee and St. Paul, first and 
consolidated mortgage on main and branch lines ; 
Chicago, Rock Island and Pacific, "The Rock 
Island." first general and refunding mortgage on 
main line and branch line; Delaware and Hudson, 
first mortgage on main line and consolidated mort- 
gage on branch line; Delaware, Lackawanna and 
rn. "The Lackawanna," consolidated and 
first mortgage on main and branch lines; Illinois 
Central, first mortgage on main and branch lines; 
Lake Shore and Michigan Southern, first mort- 

: Michigan Central, first mortgage on main and 
Nashville, unified (or consolidated) mortgage on 

70 



HOW TO INVEST YOUR SAVINGS 

main line, first and general mortgage on branch 
lines; Manhattan Railway Company, first mort- 
gage; New York Central and Hudson River, first 
and consolidated mortgage on main line, and some 
of the branch roads; Pennsylvania, general and 
consolidated mortgage on main line, first and gen- 
eral mortgage on branch lines; St. Paul, Minnesota 
and Manitoba, consolidated and extension mort- 
gage ; Michigan Central, first mortgage on main 
and branch lines ; Buffalo Creek, consolidated mort- 
gage; Fonda, Johnstown and Gloversville, refund- 
ing mortgage; Genesee and Wyoming, first mort- 
gage; Montgomery and Erie, first mortgage; Cairo 
Railroad, first mortgage; Missouri Pacific, first 
mortgage; New York, New Haven and Hartford, 
first and consolidated mortgage on main line and 
some branch lines. 

The state law specifies that the savings banks 
may also invest in the mortgage bonds of the Maine 
Central, the Morris and Essex, and the United New 
Jersey Railway and Canal Company. 

Massachusetts ranks second after New York in 
the security of its savings bank laws. The banks of 
that state are permitted to invest in United States 
Government and District of Columbia bonds; in 
the bonds of New England States, and also the 
bonds of the States of New York, Pennsylvania, 
Ohio, Michigan, Indiana, Illinois, Missouri, Minne- 
sota, Wisconsin and Iowa; in the bonds and notes 

80 



HOW TO INVEST YOUR SAVINGS 



of any county or town in Massachusetts or any 
other New England city or town ; and in the mort- 
gage bonds of a number of well-known railroads. 
including the following': Boston and Lowell, Maine 
Central, Xew York Central and Hudson River, 
New York, Xew Haven and Hartford, New York 
and New England, Boston and Maine, Old Colony, 
and practically all those legal in Xew York State. 
A few street railroad bonds are also legal for 
Massachusetts savings banks. 

In Michigan the savings banks may invest in the 
first mortgage bonds of steamship lines operating - 
on the Great Lakes. As a rule, the further west 
y< iu go the more lax become the savings bank 
laws. Hence the investments of the banks of the 
ra states, -and particularly those of Xew York 
and New England, are those to be followed bv the 



— Savings 8 1 



CHAPTER X 

FACTS EVERY [NVESTOR OUGHT TO KNOW" 

The first question that the investor asks when 

lie is about to make an investment is : "How much 
will the yield be?" Therefore it is highly impor- 
tant that he should know how to calculate the re- 
turn on the investment himself. In this connection 
it is interesting to emphasize a fundamental fact 
that ever\ investor ought to know and keep con- 
stantly in mind, and it is this : The yield on any 
stment, no matter what it is, is based on the 
amount of money you put into the enterprise, and 
not on the face value, as for example, the face value 
« -f a fo >nd. 

In calculating the yields of bonds a very com- 
mon mistake is made in using the same process 
employed in obtaining the yield on stock. But 
there is a big difference between calculating the 

Id of a bond and that of a share of stock. 

The ordinary method of ascertaining the yield 
of a share of stock is to divide the percentage of 
dividend that the >tock has been paying by the 



HOW TO INVEST YOUR SAVINGS 

market price that you paid tor it. For example, if 
the stock has been paying six per cent, and you 
paid 115 for it, the yield would be about 5.20 per 
cent. 

When you come to figure out the yield of a bond, 
however, you must take a great many things into 
consideration that do not enter into the reckoning 
in the case of stock, and it is these things that cause 
complications when the layman does the calculating. 

The two most important elements that enter into 
and affect the yield of a bond are : 

(1) The fact that, no matter what you pay for 
the bond, you get the full amount of the principal 
when it matures. Also, if you bought the bond 
below par, it would make your yield greater than 
indicated by the face rate of interest. 

(2) The fact that, in calculating bond yields, it 
is to be assumed that you will hold the bond until 
it matures. 

Here is a concrete example : If you bought at 98 
a five-per-cent. $1,000 bond, that had two years to 
run, the actual cost of the bond in money would 
be $980. If you tried to get the yield by the proc- 
ess of getting the yield of a share of stock you 
would find that it would be a little over five and 
one tenth per cent. But, when you consider that 
you paid $980 for the bond and get $1,000 for it 
at the end of two years, a cash profit of twenty 
dollars, it naturally follows that your yield will be 

84 



HOW TO INVEST YOUR SAVINGS 

more than the little over five and one tenth per 

cent. As a matter of fact, it is really a little over 
six per cent This yield is obtained from the table 
known as "Bond Values." 

How then is this yield obtained? It is an intri- 
cate mathematical process, involving calculus. For 
the convenience of the investment business, and to 
save a great deal of time and trouble, official tables 
of "Bond Values" have been prepared. It is in 
the form of a handy little volume, the work of 
experts, and includes the yields of a great variety 
of investments. The book gives the yields from and 
including three to seven per cent, and ranging in 
time from one to one hundred years. These books 
are regarded as absolutely accurate, and on the 
accuracy of their figures depends the investment of 
millions of dollars every week. Any investor can 
use them because complete instructions are printed. 

Bonds are quoted in two ways: "and interest" 
and "flat." An "and interest" price means that the 
buyer pays the seller the interest which has accumu- 
lated on the bond since the last interest was paid. 
For example, if a man buys a bond on the first of 
June and the last interest was paid on the first of 
April, there is due the seller of that bond the interest 
for two months. He is entitled to it because a bond 
interest all the time. But the buyer gets that 
interest hack when the next coupon comes due, for 
the coupon represents the interest to be paid on the 



HOW TO INVEST YOUR SAVINGS 

bond for the entire period between interest pay- 
ments. 

A "flat" price, on the other hand, is the price 
quoted that includes the interest from the time of 
the last payment of interest to the time of selling. 
For example, if the "flat" price of a bond is $970, 
the "and interest" price might be $950, with twenty 
dollars accrued interest added. 

Another technicality that the bond buyer should 
understand, because it will come up some time or 
other, is the difference between a "coupon" bond 
and a "registrable" bond. A "coupon" bond is one 
on which coupons are attached representing the in- 
terest, and the owner or agent of the owner can 
cut them off as they come due. 

Bonds may be "registrable" in three ways : as to 
principal, as to interest, and as to both principal 
and interest. When a bond is "registrable" as to 
principal you have your ownership of it registered 
with the issuing company or the bank or trust com- 
pany that acts as agent for the municipality or cor- 
poration that issues it. Then, no matter who gets 
hold of that bond, he can not secure the principal 
when it comes due, because it is in your name. 
This is an excellent precaution against theft. When 
a bond is "registrable" as to interest, you have your 
ownership registered and the issuing company sends 
you a check for the interest whenever it comes due. 
Thus, no one but yourself can collect interest. 

86 



HOW TO INVEST YOUR SAVINGS 

When a bond is "registrable" as to both principal 
and interest it is simply a combination of the two 
methods just given. 

A "coupon" bond' is more quickly negotiable than 
a "registrable" bond, because in making- a sale it is 

not necessary to change names on registry books. 

It is a good precaution to write down in a secure 
place the number of your bond or share of stock. 
Then, in case it is stolen, you can have payment 
stopped. In the case of a bond where the coupons 
are negotiable for cash this is a very important 
matter. Of course, if the bond is registered this 
precaution is not so necessary. 

If you live in a small town, or in the country, 
and have a bond with coupons, you can have these 
coupons cashed at your bank, for the reason that 
the coupon of any good bond is as good as cash. 
It saves you the trouble, too, of sending the coupon 
t« i the trustees. 

If you are going to invest, for example, in a 
short-term note, or a bond, and have the money 
ready, do not delay ; for delays, sometimes, are 
costly. It frequently happens that prices go up in 
the course of a few days. Once a very desirable 
short-term note was offered by a syndicate of New 
York bankers at 97. There was a big demand for 
it. By the time the people who had pondered over 
everal weeks sent in their orders the price 
had gone up to 1 

87 



HOW TO INVEST YOUR SAVINGS 

Find out everything you possibly can about the 
company in whose securities you invest. Ascer- 
tain the earnings of the company for as long a 
period of years as you can conveniently trace them, 
learn all you can about the men who conduct the 
enterprise, and find out exactly what rate of inter- 
est or dividend has been paid on its stocks or 
bonds. 

In making an investment never take anything 
for granted, and remember always that intelligent 
investigation is the first step in the safe placing of 
your money. 

Since a very large part of conservative invest- 
ment is in railroad securities, it is important that 
the average investor should know how to read a 
railroad report. To the layman, these reports as 
published are as so much Greek. 

In the first place a railroad report should show 
concretely three things : the earning power of the 
road, its financial condition, and its physical condi- 
tion. 

The earnings are an important feature. Gross 
earnings are the return from passenger, freight, 
mail, express and other service. The operating 
expenses, strictly speaking, comprise the total cost 
of running the road. But many other items are 
often put under this head without specification. 
With an unscrupulous management "operating ex- 
penses" cover a multitude of corporate sins; there- 



HOW TO INVEST YOUR SAVINGS 

fore, it is important that they should be specified. 
The difference between the operating expenses and 
the gross earnings is called the net earnings. Often 
a road may be doing a tremendous volume of busi- 
ness, yet show very small net earnings. To the net 
earnings is added the interest that the road receives 
from any bonds it owns, for many railroads buy 
bonds for investment, just as do banks; also they 
may receive dividends and rents on property rented 
to other railroads. 

This total gives what is called the net or total 
income. 

From this must be taken the "fixed charges." 
This simply means the money not included in operat- 
ing expenses, that the railroad or corporation is 
required to pay every year. 

The interest on its bonded debt is the first fixed 
charge against the net earnings. Taxes, insurance, 
rents and interest on money borrowed by note con- 
stitute other fixed charges. 

When the fixed charges are deducted from the 
net income they leave a balance out of which the 
dividends on the stock may be paid. 

The final remainder is what is called the sur- 
plus. This surplus plays an important part in the 
railroad's financial story. Properly, it belongs to 
holders, for the stockholders own the prop- 
erty. The bond holders are simply lenders and are 
Secured by a mortgage on the property. Some- 

89 



HOW TO INVEST YOUR SAVINGS 

times the surplus is put back into the road in im- 
provements; sometimes it goes to the stockholders 
in increased dividends ; sometimes it affords offi- 
cials the opportunity to speculate or invest in the 
stocks of other roads. 

When the surplus of a road shrinks, without any 
division having been made to the stockholders, you 
should see a corresponding increase in its assets, 
or else the investment is not of the best. The 
Pennsylvania long made it a rule that for every 
dollar paid out in dividends, one dollar should be 
invested in the property. 

The financial statement, or balance sheet, should 
show specifically the assets and liabilities, the list 
of securities owned by the road, so that their market 
value may be seen, and the exact amount of work- 
ing capital or available cash ; while the physical 
enumeration should show the miles of trackage, 
the condition of roadbed, the amount and condi- 
tion of rolling stock and equipment and the vol- 
ume and character of and the returns from the 
business. 

But the important thing for the investor to know 
is the relation that these figures bear to one 
another, for this gives the real condition of the 
road. 

The following facts should be remembered : The 
operating expenses should scarcely ever be more 
than seventy-five per cent, of the gross earnings ; 

90 



HOW TO INVEST YOUR SAVINGS 

the net earnings should be twice as much as the 
fixed charges. It is well also to apply the test 
that the Xew York savings bank laws put, which 
is that the road shall have paid a dividend of at 
least four per cent, regularly for five years. 



91 



CHAPTER XI 



PITFALLS FOR INVESTORS 



The path of the investor is strewn with pitfalls. 
Most of them belong to one of the following classes: 

i. The mining schemes which are often floated 
by unscrupulous promoters who offer shares of 
stock at prices ranging from two cents to ten dol- 
lars, with promises of twenty to thirty per cent, 
dividends. 

2. The industrial companies that claim to have 
inventions or land grants which will revolutionize 
industry and make you rich. 

3. Real estate enterprises which include boom 

rid get-rich-quick subdivisions near cities. 

4. Bucket shops which promote gambling in 
stocks, cotton and grain. 

Intimately associated with all these schemes is 

the wily promoter whose principal purpose is to 

separate the investor from his savings and in the 

ble fashion. Here is an incident that 

shows one of the favorite methods of operation: 

t long ago an old man came to the editor of 

93 



HOW TO INVEST YOUR SAVINGS 

a leading Wall Street paper and asked his advice. 
He said: "I have lost all my savings. I was ad- 
vised to buy mining stocks at thirty-three and a 
third cents a share and was told that each share 
would be worth at least five dollars in a few years. 
I had three hundred dollars in a savings bank. I 
took it out and bought nine hundred shares. The 
company has gone out of business. Can anything 
be done?" 

"Nothing," was the reply. 

The editor asked the man who had advised him 
to buy the stock, and he said: 

"My doctor." 

Promoters frequently enlist the cooperation of 
prominent men in communities and through them 
palm worthless stock off on their friends. Ministers 
are frequently the unconscious aids of schemes of 
this kind. 

During the early part of the year 1907 the United 
States suffered from a bad case of mining fever. It 
was started by the discovery of rich ore in Nevada. 
Some valuable mines were developed, but a thousand 
other mines were exploited merely on the strength 
of their being located near actual producing prop- 
erties. Wherever one turned one could see alluring 
advertisements of this stock. Shares were offered 
from one cent up. Dazzling "market letters" were 
issued filled with golden promises. These are 
schemes that the average investor should carefully 

94 



1K)\V TO INVEST YOLK SA\ [NGS 

avoid because there is absolutely no guarantee of 
return, and the way of most of the companies is 
toward receiverships and failure with seldom, if 
ever, any assets. 

The best advice in regard to the buying of gold 
or copper mining stock such as is at times adver- 
tised in large quantities and at low prices is that 
once given by a hard-headed business man, who 
said to a prospective buyer : 

"First investigate the company thoroughly; be 
sure that the people behind it are honest, and then — 
invest in something else." 

The word "industrial" covers a multitude of 
speculative sins. It is used to good and profitable 
advantage by the promoter with people who have 
a prejudice against mining stock, but who do not 
stop to realize that the "industrial" swindle is some- 
times worse than the mining fake. 

In one way, "wild-cat" schemes grow out of the 
great prosperity of the people who have had a good 
deal of money to invest. These schemes include 
inventions of many kinds, electric railroads, musical 
instruments, time and labor saving devices, rubber 
plantations, and the usual and ever-present oil well. 
Most of them are labeled "safe investment," but the 
real truth of the matter is that they are, for the most 
part, speculations of the worst kind and the very 
n -sitions that the investor with savings should 
I. With these pitfalls, as with man}' others, the 

93 



HOW TO INVEST YOUR SAVINGS 

way of the promoter is the same : he cloaks his 
scheme in the most glittering phrases, makes im- 
possible promises of big and quick profits — and the 
investor does the rest. 

But no kind of industrial pitfall has lured more 
investors than "the invention that will revolu- 
tionize industry." Every man who has ever in- 
vented anything believes, like Colonel Sellers, that 
there is "millions in it." This feeling is often con- 
tagious, and affords one reason why so many people 
are willing to put their money into that kind of 
speculative proposition. 

Practially all promoters of inventions use the 
same method. It is this : Nearly every mechanical 
device, no matter what its use, is heralded as being 
"as good a proposition as was the Bell Telephone 
stock." There is big fascination in that statement, 
because it is pretty generally known that the people 
who were fortunate enough to buy Bell Telephone 
stock years ago made a great deal of money out of 
it, though they did not make half as much as the 
shrewd promoter of the present day would have 
you believe. So thousands of people are looking 
for just another good thing and the promoter en- 
courages this hope to his own advantage. 

But telephones and air brakes do not happen 
every day, and, if they did, the chances are that 
they would not fall into the hands of "get-rich- 
quick" promoters for exploitation. 

06 



HOW TO INVEST YOUR SAVINGS 

Some people find it difficult to resist these allure- 
ments. In the case of hundreds of companies 
whose stock is being sold broadcast to innocent in- 
vestors, the same situation is presented, and it is 
this situation that the investor should keep in mind. 
In the great majority of cases the invention 
has not had a commercial test, and is, therefore, 
still an uncertainty as a money maker. There- 
fore when you buy stock you take a very long 
chance. 

The bucket shop is the race track of the specula- 
tive game, and the operator takes the place of the 
bookmaker. He bets against the people who in- 
trust their money to him. In financial phrase- 
ology, "bucket shopping" means, not actually buy- 
ing stock on order, but paying or receiving the 
difference in price after the customer has closed the 
account. 

The bucket shop may operate in stocks, in grain 
or in cotton, or in any other speculative medium. 
All money looks alike to it just so it gets it; and it 
usually does get it. 

This form of speculation, in a way, has grown 
out of the fact that locality has come to have a 
lerable part in the investment of the people 
Southern people, for example, are more than likely 
to invest in cotton; Middle Western people are 
partial to wheat or pork ; Westerners are willing to 
take a chance at mining stock; while Easterners 

7— Soring s 97 



HOW TO INVEST YOUR SAVINGS 

and New Englanders, following many traditions of 
trading, stick to stocks. 

The shrewd promoter of speculative enterprises 
knows these traits of locality, as they might be 
called, and plays on them to the fullest extent. The 
South, for instance, is flooded with literature adver- 
tising all kinds of schemes to get rich in cotton at a 
small price. 

Practically all stock and other operations in 
bucket shops are on margin, which has been de- 
scribed in the chapter on stocks. It is this kind 
of gambling that has wrought widespread ruin, 
sorrow, and disgrace. The court records every- 
where are filled with the stories of men who started 
on their downward career by losing their savings, 
or other people's money in bucket shops. 

Bucket shops sometimes flourish under the name 
of "Syndicates," "Exchanges," and "Stock and 
Commission Houses." But by any other name they 
would be the same nefarious institutions. 



98 



CHAPTER XII 

WALL STREET THE MONEY MARKET — TPIE 

BANK STATEMENT 

Wall Street is the financial heart of the nation 
and consequently the very center of the invest- 
ment business. Its work and meaning are of sig- 
nificance to every investor. Xo matter how trivial 
your savings or how small your investment you 
are bound up in some way to that great artery 
which is perhaps the best known and least under- 
>d street in America. 

If you have an insurance policy, for example, the 
company that issues it has some of its funds in- 
vested in Wall Street ; if you ride on a railroad, 
that road has, in all probability, been financed 
in Wall Street; if you are a farmer out West, 
the money with which you pay your harvest hands 
has come from Wall Street, and if you have 
some of your savings deposited in a bank you will 
find, in all likelihood, that some of its deposits have 
been sent to Xew York to be invested where they 
will receive the highest return. Thus, unknown to 

99 



HOW TO INVEST YOUR SAVINGS 

yourself, you are connected with that vast and 
powerful machine that not only regulates the 
finances of the country, but fixes the prices of the 
securities in which you invest, and on which you 
may depend for your income. 

Yet Wall Street is simply a great business insti- 
tution. Its story is the history of the financial, in- 
dustrial and agricultural development of the United 
States. Within its precincts the first Congress 
sat, and George Washington took the oath of 
office as President. There is reference to it in 
every issue of every newspaper published in this 
country. 

Wall Street, to begin with, is the name of a street 
in New York, but in reality it means the whole 
financial district of that city, which includes a con- 
siderable area. Wall Street itself is a narrow, al- 
most crooked, street that runs from Broadway, 
where old Trinity Church stands as a tall brown 
sentinel, east to the East River. On the intersect- 
ing and parallel streets are huge office buildings 
where the railroads and giant corporations have 
their main offices and whose securities form a large 
part of the medium for investment and speculation. 
These are the camps of the captains of industry. 
Yet a man can have an office in the Waldorf-Astoria, 
or almost anywhere else outside the district, and 
be "of" Wall Street. 

Wall Street got its name from a wall or £tock- 

IOO 



HOW TO INVEST YOUR SAVINGS 

ade built in the thoroughfare to keep out Indians, 
in the old days when New York was a Dutch city. 
Late in the eighteenth century some merchants met 
under a buttonwood tree near where the subtreasury 
now stands, to trade and sell stocks. These men, 
wh<> dealt in hundreds of dollars, were the fore- 
runners of the brokers of to-day who deal in many 
millions. For Wall Street, stripped of glamor and 
technicalities, is a place to trade in and to make 
or lose money. 

The hub of Wall street is the Stock Exchange. 
In nearly all the large cities there is a stock ex- 
change, but these other exchanges deal mostly in 
local securities. The Xew York Stock Exchange 
is the great exchange of the country. There are 
eleven hundred members. Each one has a "seat," 
.lied because the original members years ago 
had stalls or seats. A seat has been known to sell 
for $93,000. They are only sold when a member 
or goes out of business. The members of the 
exchange are brokers whose business it is to buy 
and sell securities. They charge a commission for 
doing so. In other words, they perform the same 
service that a real estate agent does when he sells 
a house or lot for you. 

The brokers meet in a great hall called "The 
Floor." If you stand in the visitors' gallery and 
see the "Floor" in action, you may think possibh 
that everybody down there has gone mad. AH 

101 



HOW TO INVEST YOUR SAVINGS 

seems to be confusion, men are rushing around and 
yelling while bits of white paper flutter in the air 
and litter the floor. Yet behind all this bedlam the 
wheels of a great machinery are whirring. Some 
brokers are buying; some are selling; profits are 
rising and losses are dwindling. Every broker car- 
ries a pad on which he makes a memorandum of 
sale. At the close of the business day, which is 
three o'clock, there is a comparison of sales. Some- 
times a block of one hundred shares of stock has 
been sold six times at six different prices. Yet this 
block only changes hands once, for it goes to the 
last buyer. This is done through the stock ex- 
change clearing house. 

On the "Floor" you see the posts around which 
the brokers rally. These posts bear the names of 
stocks. If a broker wants to buy or sell Union 
Pacific or Amalgamated Copper he goes to the post 
that bears one of these names. Every sale is re- 
corded, and it is this record, sent out on the tape of 
the ticker, that forms the basis of sales everywhere 
in the United States. Darting around among the 
brokers are the official reporters whose business it 
is to get the record of sales as soon as they are 
made. If a broker sells five hundred shares of 
Reading at 90, it would go out on the tape as fol- 
lows : "RG 500 90." To save time and space the 
names of the securities are abbreviated. Reading, 
as already indicated, is RG; Missouri Pacific is 

102 



HOW TO INVEST YOUR SAVINGS 

MP; Rock Island is RI ; New York Central is 
CEX. 

The transactions of the New York Stock Ex- 
change are eagerly watched by the whole trading 
nation. The tape may spell fortune or ruin. If 
the Xew York market is depressed the feeling is 
contagions ; if it is buoyant and active there is a 
good feeling everywhere. 

Although the number of bonds sold on the New 
York Stock Exchange is only one fifth of the total 
amount disposed of, the prices made for this one 
fifth are the prevailing prices. 

There are two great divisions in the stock market. 
One of them comprises the bulls, who buy stocks 
in the expectation that they can sell them at a 
higher price. Hence a bull market is a market of 
advancing prices. The other division includes the 
bears, who sell in the expectation that they can 
buy the stocks later at a lower price. Hence a bear 
market is one of declining prices. A bull who has 
bought is "long" of the market. A bear who has 
sold is "short'' of the market. A "long" who sells 
at a higher price than he bought is said to have 
"realized his profit/' If he sells at a loss he is 
said to have "liquidated." The w r ord liquida- 
tion, so frequently used in Wall Street news, 
simply means selling at a loss. A "short" who 
has bought stocks is said to have "covered." 
This may mean either profit or loss. A "bear 

103 



HOW TO INVEST YOUR SAVINGS 

raid" is when the bears combine and force down 
prices. 

There are two other divisions : the public and 
the professionals. The public comprises the men 
who come into Wall Street occasionally to specu- 
late; the professionals are those who make a busi- 
ness of speculating. 

There are many securities not traded in on the 
big stock exchange. They are sold on the "Curb," 
which is on the street not far from the Exchange. 
The Standard Oil stock, for example, which is not 
"listed," is sold on the "Curb." There are other 
market places, including the Consolidated Exchange, 
which is a smaller stock exchange and sells in 
small lots, and the Coffee, Cotton and Produce 
Exchanges. 

Money has a market like any commodity. Money 
is also the basis of credit. If you have no money 
you have no credit. Through credit the power of 
money is expanded for it enables one dollar to do 
the work of a number of dollars. 

The money market is made possible by the fact 
that people a-nd corporations are constantly need- 
ing money for their business and other people and 
banks are lending it to them. Since New York 
is the business center, and since the New York 
banks make one fifth of all the loans of the country, 
it is natural that that city should also be the finan- 
cial heart of the nation. The money prices it makes 

104 



HOW TO INVEST YOUR SAVINGS 

are the prices that rule everywhere within the range 
of its influence. 

Briefly stated, the money market is the place in 
which the borrowing and lending of money are 
done. The people who borrow pay a certain price 
for the use of it. This price is called interest. Thus 
interest rates figure very prominently in the trans- 
actions of the money market. In the popular mind, 
high interest rates are synonymous with usury. 
But high interest is sometimes the legitimate de- 
velopment of the money market. 

With money you can usually make more money. 
Because business men and corporations are con- 
stantly in need of money, a demand for it is created, 
and it is this demand that fixes the price that people 
have to pay for it. 

There are two important divisions in the money 
market which relate to what are commonly known 
as call and time loans. You see references to these 
and the interest they bring, on the financial pages 
of the newspapers every day. 

Call money is money that is borrowed subject to 
call, or demand. It may be for one day or for three 
days. The price of call money is usually a pretty 
fair index of general stock market conditions. When 
call money yields one, two or three per cent, interest, 
it is said to be "easy*- ; this means that it is plentiful. 
When it yields six, seven or eight per cent., it is said 
to be "firm." Then it is becoming less plentiful. 

105 



HOW TO INVEST YOUR SAVINGS 

When the price goes beyond ten per cent., it is said 
to be "stringent." It is then very scarce. 

In times of great financial stringency call money 
has risen to extremely high prices. In August, 
1890, for example, it went to 186. This does not 
mean that the man who borrowed one hundred thou- 
sand dollars had to pay one hundred and eighty-six 
thousand dollars for it. But he had to pay for 
it at the rate of one hundred and eighty-six per 
cent, a year. 

Call money rates are for the year. The usual 
rate for call money is from two to four per cent. 
Call money is used mostly by brokers or specula- 
tors who need a large sum of money for a short 
time. They need it badly, and they are willing to 
pay well for it. 

Time loans, on the other hand, are just what the 
name indicates. In their case money is loaned for 
a certain time, usually thirty, sixty or ninety days. 
The interest rates on time money are usually higher 
than those on call money, for the reason that such 
loans keep the money out a considerable time and 
it is so prevented from being worked over again 
quickly. The interest on time money, under ordi- 
nary market conditions, ranges from five to six per 
cent. 

In both call and time loans the borrower must 
deposit good collateral as security. This may be 
either stocks or bonds. For a loan of one hundred 

106 



HOW TO INVEST YOUR SAVINGS 

thousand dollars one would ordinarily deposit 
securities whose market value was not less than 
one hundred and twenty-five thousand dollars. This 
is called "hypothecating" securities, and is a phrase 
that you often encounter in financial columns. It 
simply means offering stocks or bonds as security 
for money that is borrowed. In the event of the 
borrower not being able to pay the loan, the col- 
lateral is sold by the man or bank that loaned it. 
The banks that hold collateral keep a sharp watch on 
it. In case it is a time loan, there might be a "slump" 
or decline in the stock market, and then the securi- 
ties offered as collateral would depreciate in value. 
The borrower who had deposited them would be 
called upon for more security to bring the total 
amount up to the original sum required. 

No matter in what part of the United States 
you live, if you pick up a newspaper on Saturday 
afternoon or Sunday morning, and read the finan- 
cial news from Xew York, you will see prominent 
reference to the weekly bank statement, stating the 
effect of its publication upon the stock market. 

The weekly bank statement is sent out by the 
Xew York Clearing House. Every city of conse- 
quence has a clearing house, which is an institution 
supported by the banks, in which they settle their 
business with one another, instead of settling it 
individually. It saves much time, labor and ex- 
pense. The Xew York Clearing House is the 

107 



HOW TP INVEST YOUR SAVINGS 

largest and most important in the country, not only 
because New York is the financial center of the 
United States, but because the New York banks 
which comprise its membership, and the other 
New York banks, hold approximately one fifth of 
all the loans in the country. 

The weekly bank statement that you see every 
Saturday is the statement of the banks that com- 
prise the membership of the New York Clearing 
House, and it is upon their condition that part of 
the country's credit depends. These banks number 
fifty-four, of which thirty are national banks. Two 
of the latter, the National City Bank and the Na- 
tional Bank of Commerce, have a capital of twenty- 
five million dollars each. 

The clearing house requires that each of these 
associated banks shall submit a statement of its 
average condition for the six business days pre- 
ceding, at eleven o'clock Saturday morning. If it 
is a matter of loans, for example, the bank does not 
send the actual amount of loans outstanding, but 
the average for the week based on the average of 
each day. Thus the statement is not actual, but 
average. The specific items that the clearing 
house requires reports on are : capital, net profits, 
circulation, loans, specie, legal tender and deposits. 
Circulation means the amount of notes bearing the 
bank's name, and which are secured by deposits 
of Government bonds. 

108 



IloW TO [NVEST TOUR SAVINGS 

The banks send in this information on printed 
slips furnished by the association. As soon as all 
are in, the total is made up by expert accountants 
as speedily as possible. Elaborate precautions are 
taken to prevent the information from getting out 
ahead of time. 

The must important item of all is the reserve. 
The National Banking Law requires all national 
banks to keep twenty-five per cent, of their deposits 
on hand in specie and legal tender. This is the 
legal reserve. 

State banks — that is, banks other than national — 
are required to keep only fifteen per cent., but, by 
an unwritten law, they conform to the national re- 
quirement. When the cash holdings of a bank 
exceed the amount required by law, they are said 
to have a surplus; when the amount is below the 
legal limit, there is a deficit. 

The reserve, or surplus reserve, as it is techni- 
cally called, is the difference between the surplus 
required by law and the actual amount of cash on 
hand. Since a bank works with money, it is appar- 
ent that to know the amount of reserve is a very 
important thing. If banks, for example, use up a 
i their money, or lose it by withdrawals of 
all kinds, they will show a deficit. 

In studying or analyzing the bank statement, 
four things must be considered: reserve, outstand- 
ing loans, deposits, and cash holdings. 

109 



HOW TO INVEST YOUR SAVINGS 

The reserve has already been explained. The 
loan statement shows that the bank is either ex- 
panding or contracting. Contraction means the 
calling in of loans, and this often works a hardship 
on the borrower and is indicative of an advance in 
rates of interest. Then people find it harder to get 
money, and business may be materially affected. 

A large deposit, however, does not always mean 
a large amount of money on hand. By the process 
of relending, the same deposit may be expanded to 
a larger sum, because the various people to whom 
the bank lends the money deposit it in the bank 
again. 

A big decrease in cash holdings (specie and legal 
tender) may not be due to unnatural causes, and, 
therefore, need not cause any alarm. There are 
many legitimate ways to decrease these cash 
holdings, such as using large sums to move the 
crops. 



no 



CHAPTER XIII 

GLOSSARY OF FINANCIAL WORDS AND TERMS 

Above par. — Higher than the nominal or par 
value. 

Assessment. — A call on stockholders for money 
to be used for a specified purpose. 

Assessable stock. — Stock that can be assessed. 

Bank clearings. — Amount of checks and drafts 
that go each day through the clearing house and 
representing the amount of business done. 

Bear. — One who operates for declining prices. 

Bear panic. — A market precipitated by bears anx- 
ious to buy. 

Block. — A group of bonds or shares of stock all 
bought at the same time. 

Board. — The blackboard on which the market 
quotations are written. Also designates the Stock 
Exchange. 

Bond. — A receipt for money borrowed by a rail- 
road or corporation, extending over a certain period 
and paying interest at specified intervals. It may 



HOW TO INVEST YOUR SAVINGS 

give the owner a mortgage on property or it may 
be personal. 

Books close. — During a fixed period before the 
payment of a dividend on stock, in order that the 
corporation may have time to determine from its 
records who is entitled to receive said dividends, 
the books are "closed" and no transfers are re- 
corded. 

Break. — A sudden decline in the price of a stock. 

Broker. — An agent for the buying or selling 
of securities who receives a commission for his 
work. 

Bull. — An operator or individual who operates 
for advancing prices. 

Bulling the market. — Putting up the prices. 

Buying outright. — Paying full price and actually 
owning stocks. 

Call loans. — Money loaned subject ta the demand 
or call of the lender. The time is usually from 
one to three days. 

Certified check. — A check which has been recog- 
nized by a competent officer of a bank as a valid 
appropriation of the amount of money specified 
therein to the payee and bearing the evidence of such 
recognition. Usually the cashier or teller writes or 
stamps on the check, over his signature, the words : 
"Certified by the Bank/' 

Coalers. — The term used to indicate the great 
railroads engaged in the coal trade or carrying 

112 



llu\V TO 1NVKST YOUR SAX [NGS 

large quantities of coal. They include the Lacka- 
wanna, Baltimore and Ohio, Pennsylvania, Phila- 
delphia and Reading, Chesapeake and Ohio, the 
Central of New Jersey, and others. 

Commercial paper. — Notes that arc negotiable 
drawn on account of merchandise of some kind. 

Consol. — An abbreviation or contraction of the 
word consolidated. In England consols represent 
the consolidated debt of the nation. 

Coppers. — Stocks in copper mines. 

Corner. — Buying a large quantity of a certain 
stock and thereby controlling the price of it. 

Coupon. — Slips attached to bonds which repre- 
sent the amount of interest due at a specified 
time. 

Coupon bonds. — Bonds with coupons attached. 

Curb market. — The market located on Broad 
Street just south of the Stock Exchange in which 
many securities not listed on the big Exchange are 
traded in. It is held every business day rain or 
shine. 

Curb broker. — A broker who operates on the 
curb. 

Deal. — A transaction in securities entered into 
by a group of men. 

Debenture. — A debt. 

Debenture bonds. — Bonds that are simply 
promises to pay. 

Default. — Failure to pay interest on bonds. 

8—Sa-ings I 13 



HOW TO INVEST YOUR SAVINGS 



Delivery. — The successful transfer of a stock, im 
plying that all requirements have been met. 

Demurrage. — The charge when a railroad car or 
ship has remained over time for unloading. 

Discretionary pool. — A pool formed to operate 
in a certain stock in which the majority of partici- 
pants in it leave the operation to one or more 
members. 

Dividend. — The sum divided as profits among the 
shareholders of a stock company. 

Ex-dividend. — On the day when the stock transfer 
books of a corporation are closed, the stock that 
day sells ex or without dividend. It does not carry 
with it the dividend about to be paid. 

Fiscal year. — The business or financial year, usu- 
ally ending June 30th. 

Flat. — Meaning the price including accrued inter- 
est. The prices of bonds listed on the New York 
Stock Exchange are flat prices. 

Flurry. — A sudden decline in the stock mar- 
ket. 

Flyer. — Buying stocks or grain with the expecta- 
tion of a quick profit. 

Funding. — Converting a current liability into a 
permanent debt. 

Futures. — The right of the buyer to demand de- 
livery or of the seller to deliver within a certain 
specified time. 

Granger. — Term used to indicate the railroads 
114 



. 



HOW TO INVEST YOUR SAVINGS 

handling farm products for freight as, for example, 
the Burlington, Great Northern, Chicago, Mil- 
waukee and St. Paul. 

Hypothecating. — Pledging stock as collateral for 

loans. 

Industrials. — Stocks of corporations engaged in 
some industry. 

Lamb. — One who comes into Wall Street with- 
out experience, and who usually retires without 
money. 

Lien. — A claim or mortgage on property. First 
lien is the same as a first mortgage. 

Liquidation. — Selling securities at a loss to realize 
cash. 

Listed. — Stocks and bonds that have met all Ex- 
change requirements and are traded in on the New 
York Stock Exchange. 

Long. — One who has bought stock with the ex- 
pectation of an advance in prices is long of the 
market. 

Margin. — The money deposited by a customer 
with a broker, usually ten per cent., to cover the 
purchase of stocks. 

Merger. — The combine of corporations or rail- 
roads into one company. 

Non-assessable stock. — Stock that cannot be as- 
sessed. 

Pacific-. — The name used to designate the rail- 
Is with the word Pacific in their title ; as, for 

115 



HOW TO INVEST YOUR SAVINGS 

example, the Union Pacific, Northern Pacific, 
Southern Pacific. 

Paper profits.— Profits that have' not been con- 
verted into actual cash. 

Par. — The face value, usually one hundred dol- 
lars in the case of stock. 

Passing dividends. — Not declaring a dividend. 

Point. — In stocks one point is one dollar a share. 
An advance of five points is an increase of five 
dollars in the price of the stock. 

Professional. — One who makes a business of 
speculation. 

Pool. — Grouping of large quantities of a certain 
stock to put through a deal of some kind. 

Public. — The outsiders who trade in Wall Street. 

Rentes. — The government bonds of France widely 
held by the great mass of French investors. 

Room trader. — A stock exchange member who 
operates for himself. 

Scrip. — A certificate issued by a railroad or cor- 
poration showing that the holder is entitled to 
money. It is usually issued as a substitute for 
dividends. 

Share. — A certificate representing a part of capi- 
tal stock. - 

Short selling. — Selling at a certain price with the 
expectation of buying the stock at a lower price, 
and making delivery. 

Sinking fund. — A sum of money set aside for a 
116 



HOW TO IXVKST YOUR SAVINGS 

specific purpose as, for example, the redemption of 
an issue of bonds. 

Slump. — A break or decline in the market. 

Specialists. — Brokers who deal in a certain kind 
of stock only. 

Syndicate. — A combination of business men, 
bankers or investment houses for the purpose of 
putting through a deal. 

Ticker. — The instrument, operated by electricity, 
which records the stock market transactions on the 
tape. 

Tip. — A pointer on a stock or market condition. 

Tipster. — One who makes a business of - selling 
tips. 

Trunk lines. — Through railroad lines. 

Underwriting. — The taking over of an entire 
bond issue at a certain price by a banker or a group 
of bankers. The underwriters then retail the bonds 
at a higher price. 

Unloading. — Selling out a stock. 

Upset price. — The lowest price at which a rail- 
road or a commodity may be sold at auction. 

Watered stock. — Stock which represents neither 
tangible assets or earning power. - 

Wiped out. — To lose all the margin that you have 
deposited with a broker. 



"7 



CHAPTER XIV 

FINANCIAL BOOKS OF REFERENCE 

In case the investor desires to go more into 
detail in the matter of finance or investment, the 
following books may be profitably used as works of 
reference: 

"Moody's Manual of Railroad and Corporation 
Securities." — This book has the complete record of 
the steam railroads and franchise and industrial cor- 
porations of the United States, and is the standard 
of its kind. 

"Poor's Manual of Railroads." — This contains a 
statistical record of steam railroads in the United 
States. 

'•The Work of Wall Street," by Sereno S. Pratt, 
editor of the Wall Street Journal. — A comprehen- 
sive account of every branch of activity of the 
Street. 

"Corporation Finance," by Thomas L. Greene. — 
A study of the finances of corporations in the 
United States, with special reference to the value of 
their securities. 

119 



HOW TO INVEST YOUR SAVINGS 

'Trust Finance," by Edward S. Meade. — An 
illuminating discussion of a timely subject. 

"The Anatomy of a Railroad Report," by 
Thomas F. Woodlock. — The most compact ex- 
planation of a difficult technical subject yet made. 

"Bond Values," by Montgomery Rollins. — The 
standard compilation of yields on bonds adapted 
for every price, and extending from one to one 
hundred years. 

"Funds and Their Uses," by Dr. F. A. Cleve- 
land.- — A very valuable and instructive work with 
much practical information. 

"American Railway Transportation," by Emory 
E. Johnson. — A lucid explanation of all features of 
railroad organization. 

"Fifty Years in Wall Street," by Henry Clews. — 
An intimate account by a veteran of some of the 
most dramatic events in our financial history. 

"The Modern Bank," by Amos K. Fiske.— A 
description of the functions and methods of the 
present system of banking. 

"The Bond Buyer's Dictionary," by S. A. Nel- 
son. — A book of much valuable information for 
the layman. 

THE END 



POOR RICHARD, JR.'S, ALMANACK 

Benjamin Franklin's Poor Richard has {(Hind a 
legitimate successor in the anonymous modern 
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"Strong measures are the first resort of the 
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"Friends are made by exchanging services; 
enemies by exchanging servants." 

Who is the author? This question will tease 
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Certainly the peculiar sort of wit contained in 
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HENRY ALTEMUS COMPANY 

PHILADELPHIA 



THE BIBLE AS GOOD READING 
By ALBERT J. BEVERIDGE 

When Senator Beveridge was a young man he 
was in a logging camp. An inordinate reader, he 
found himself with nothing to read but a Bible. 
He had to read something, so read the Bible over 
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GOOD STORIES FROM THE. LADIES' 
HOME JOURNAL 

One of the commonest experiences in the mental 
life of the average man is irritation at his inability 
to remember what so tremendously amused him 
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yet he can't for the life of him recall the cause of 
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The reason one leaves for the psychologist to 
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The book is chock full of bright jokes and spar- 
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THE BOY GEOLOGIST 

By PROF. E. J. HOUSTON 

It begins to look as if the Nature Faker were 
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just put forth The Boy Geologist. 

The boy geologist and his chum, who has a strong 
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in the hope, expressed in his preface, that those 
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this branch of natural science." 

Prof. Houston, of course, speaks with authority. 
He is emeritus professor of physical geography and 
natural philosophy in the Central High School of 
Philadelphia ; professor of physics in the Franklin 
Institute, and has served two terms as president of 
the American Institute of Electrical Engineers. 
Cloth, Illustrated . $1.00 

HENRY ALTEMUS COMPANY 
PHILADEL PHIA 



IBJL?9 



